MBS Live Recap: Global Reaction to Powell Fuels Fed Frenzy

There have been two distinct phases to the bond market rally that followed yesterday's speech by Fed Chair Powell.  The first was fairly logical in that shorter-term debt outperformed yesterday afternoon.  That's logical because the Fed Funds Rate has the biggest impact on short-term debt like 2yr Treasury yields. 

The second phase saw a bit of a reversal to that outperformance--or rather, it saw longer-term debt (like 10yr Treasuries) catch back up.   It's far less of a given that the overnight rally was all about Powell, though some of it certainly was.  

Bonds hit the domestic session at the best levels in months.  Domestic traders had already reacted to Powell, and were unsurprisingly not willing to chase the price action implied by the overnight moves.  It was a slow, steady grind back toward higher yields, pretty much all day.  Refreshingly, that grind never moved quickly enough to threaten bonds with a move back into negative territory on the day.  As such, we ended the day at the lowest closing yields in months, even though they weren't quite as low as today's opening yields.