MBS Live Recap: Narrow Range and Drama-Free Ahead of Fed

The only way to read anything overly dramatic into today's bond trading would simply be to observe where it falls in the bigger picture.  In other words, this sort of stuff.  There were no major reactions to today's econ data--not that we'd expect them--and muted reactions to trade related headlines.  Notably, the S&P tagged another new all-time high and bonds didn't even seem to mind much.

Today's relative calm could be due to the fact that bonds have sold-off as much as they want to sell-off to get in position for tomorrow's Fed announcement.  With the rate cut being a foregone conclusion, the market turns its attention to the verbiage of the announcement and Powell's press conference.  He's expected to acknowledge trade war progress and improved odds of a Brexit compromise (even if no guarantees on either front).  All things being equal, those are hawkish expectations, and thus they help to explain a measure of the recent bias toward higher rates.

We know that the bond market can often get in an extreme position ahead of the Fed only to end up moving back in the other direction afterward.  As such, we can hope that's what we're seeing this time around, but the better bet is to simply remember and be prepared for the fact that bonds can go both ways, multiple times on Fed day, and we may not even see the eventual momentum until the end of the week.