MBS Live Recap: Good Vibes, But Not Much Progress

Today was interesting for bond markets in the sense that it certainly FELT like a nice day with solid gains.  This has to do with the noticeable rally in the middle of the day and the fact that it was clearly tied to a specific event.  It didn't hurt that the event happened to be a speech from Fed Chair Powell (thus drumming up plenty of press coverage and invoking plenty of name recognition).

At the end of the day, however, 10yr yields were barely stronger.  The rally seemed bigger than it was because it traversed the week's highest and lowest yields in a matter of minutes.  My point is that we didn't break through those yields (even after several attempts in the afternoon).

What did Powell say?  Nothing too outrageous.  He merely threw his name in the hat with other Fed speakers who've noted that we're getting close to neutral.  Markets take this to mean that the Fed is almost done hiking rates.  Both sides of the market appreciate such things, so both sides of the market rallied.

Shortly after the initial rally, bonds moved back toward weaker territory, even though there was no concomitant move in stocks.  Making matters all the more interesting was the fact that MBS didn't participate in that bounce--just Treasuries.  We can reconcile all of the above with the 7yr Treasury auction and the fact that its not uncommon for Treasuries to sell-off moderately by way of making a concession for an upcoming auction.  In those cases, when the auction comes in reasonably strong, the pre-auction concession is usually recovered.  That was exactly what happened today.

Bottom line: nice intraday rally on Powell, but still waiting for bigger tickets to cause bigger moves.  Given Powell's comments on data dependency (he said they're closely watching the data at this point), next week's big-ticket econ data is all the more important when it comes to setting year-end momentum in motion.