Bond Market Breakout is Here (The Bad One)

For days--and especially since last Friday--we've been increasingly worried that the 2-month bond rally was running out of steam and at risk of a reversal.  The jury was technically out until all of our overhead ceilings were taken out.  As of today, they are.  

Econ Data / Events
Market Movement Recap
08:23 AM

Bonds were weaker overnight with most of the damage arriving with the European session and strength in equities markets (i.e. "risk-on" move).  Weakness extending this morning with higher CPI not helping.  10yr up 4.6bps and UMBS 2.0 down a quarter point.

10:04 AM

Modest recovery for bonds after bouncing off the 0.69% technical ceiling.  10s moved as low as .663 but are up 1bp since then.  MBS rallied a solid 6 ticks (.19) from the lows, but have also pulled back (now only an eighth of a point off the lows).  3 hours until the 10yr auction.  Conventional wisdom suggests additional strength is unlikely in that window (and possibly even a predisposition toward pre-auction weakness).  Surging stocks aren't helping.

11:31 AM

MBS outperforming significantly ahead of Treasury auction (suggests supply is weighing heavily on Treasuries).  MBS at strongest levels of the day despite Treasuries at weakest levels.

03:22 PM

MBS remain near highs, but Treasury yields are up from intraday lows (.673 vs .655 about an hour ago).  Those intraday lows line up with yesterday's intraday highs, thus suggesting a new pivot point for the list.  Stocks are soaring, with S&P futures up 1.55%.