Treasuries Reluctant to Add to Rally, But MBS Outperform.

It was a ho-hum day for bonds.  Movement was minimal and volume was the lowest of the week.  We could choose to be concerned that Treasuries broke from yesterday's obvious game plan of rallying to lower yields, or we could simply assume that it's a Friday in November with expectations running hot for the next big vaccine trial announcement (any day now, but officially "by the end of the month" according to Moderna).    Vaccine or no vaccine, the bond market's hesitation is noteworthy given the ongoing surge in covid case counts.  At the very least, yields are being careful to avoid overdoing any rallies.  MBS didn't necessarily rally hard, but they definitely outperformed Treasuries yet again.

Econ Data / Events

  • 20min of Fed 30yr UMBS Buying 10am, 1130am (M-F) and 1pm (T-Th)

  • Core PPI Inflation 1.1 vs 1.2 f'cast, 1.2 prev

  • Consumer Sentiment 77 vs 82 f'cast, 81.8 prev

Market Movement Recap
10:08 AM

Bonds were mixed overnight, setting a trading range of .86-.89 in 10yr yields.  That continues to hold so far in the domestic trading session.  10s are currently up half a bp at .888 and 2.0 UMBS are up 1 tick (0.03) at 103-10 (103.31).  No major market movers in play so far--just some small-scale volatility surrounding the 8:20am CME open.  

01:19 PM

Modest weakness trickling in during the PM hours.  It coincides with better gains in stocks and relatively lighter volume compared to the rest of the week.  In general, markets are tuning out until next week and whatever trading we see for the rest of the day will be purely incidental (unless we get an obvious market-moving headline and a big reaction).  10yr yields are up 1.5bps at .898% and 2.0 UMBS are down 2 ticks (0.06) at 103-08 (103.25).  Any additional weakness (incidental though it may be) could connote some negative reprice risk.

03:18 PM

MBS are outperforming a bit more now, moving up to their best levels of the day after the Fed released its next 2 weeks of MBS purchase schedule.  Amounts for 1.5/2.0 UMBS 30yr fixed buying operations were increased significantly (from roughly 2.8 bln per session to 3.6 bln).  Granted, the Fed is only responding to the changing shape of supply, but it will nonetheless keep the soil fertile for further MBS outperformance.  2.0 coupons are up 1 tick on the day at 103-11 (103.34) and 10yr yields are up 1bp at .893.