MBS Live Recap: Fed Proves to be Mere Speedbump For Bond Sellers

Hindsight really is 20/20, and foresight wasn't too bad either.  Either way, the picture is becoming clearer as bond yields move back toward recent highs in the wake of today's Fed Minutes. 

Let's start with the foresight.  We'd been expecting (or at least entertaining the strong possibility) bonds to weaken earlier this week in the event the stock market found its footing.  Stocks found that footing yesterday, but bonds didn't panic too much.  My conclusion from yesterday's recap was that "bond traders could be waiting to make their move until tomorrow afternoon's Fed Minutes," or that we were getting a temporary boost from somewhere.

Today's uneventful Fed announcement (stocks closed right at pre-Fed levels and bonds didn't really make a big move until 90 minutes after the Fed) was just that: an uneventful place-holder that bonds were waiting to see.  Once traders could confirm there was no secretly rate-friendly agenda (i.e. are we actually hiking too quickly like Trump says?  Should we tone things down?), the previously scheduled programming was resumed. 

Hindsight confirms that European bond market strength has been another key ingredient in the past week of bond market stability.  The day's initial wave of selling really began right after Europe closed.  The Fed Minutes end up looking like a mere speedbump in that light, with traders defaulting to selling bonds in general.  The net effect was a return over 3.20% for 10yr yields by the end of the day, heavy losses in MBS (quarter point) and widespread negative reprices.  If you didn't get dinged this afternoon, you'll see the weakness in tomorrow morning's rate sheets (unless something really interesting happens overnight).