MBS Live Day Ahead: Last Week's Fed Scare is Bringing Out Bond Buyers

If you're like me, your initial impression of the financial market is that it's "thing" with a mind of its own--always on, always moving, with thousands of interested parties moving money at any given millisecond.  To some extent, that's true, but only at certain times of day and only for certain sections of the overall market.  The overnight hours in the cash market for US Treasuries aren't really in the big leagues in that regard.

But come 8:20am, that often changes.  8:20am is the unofficial opening bell for the bond market and the official opening bell for CME pit trading in Treasury options (previous Treasury futures too).  Things are hit and miss before that, but domestic trading can be seen in spurts in the several hours leading up to 8:20am.  When domestic traders are especially eager to "get theirs," we can see evidence of participation as early as the 6-7am hour.  

This early domestic trading seems to be exactly what's happening since last week's Powell/Fed scare.  Every day since then, the 6-7am hour has seen a few deeper-pocketed traders set a positive tone heading into the traditional domestic trading day.  On Friday, it was more of a continuation of the existing overnight trend, but on each of the subsequent days, it was a reversal.

20/20 hindsight or not, this stands to reason.  After all, the Fed may be talking up its inflation target and that may be scary for bonds, but it's also talking up the need for ongoing bond buying, not to mention its fear about a deeper, more protracted economic downturn.  I've seen several anecdotal reports of traders looking to "buy the dip" in bond prices on any given day (or buying the spike in terms of yields).  On Friday, it was at .79, then .74 heading into Monday, .73 yesterday and now .69 today.  With that, we're all the way back to pre-Powell/Fed levels, so this may be it for the uncommonly obvious early morning buying among domestic traders.