Serious Sell-Off in Bonds. Time to Panic?

A new month brought in new momentum for the bond market--a lot of it--and not the good kind!  Treasuries had it far worse than MBS, but MBS are still significantly weaker.  Mortgage rates, however, aren't necessarily weaker than yesterday depending on the lender.  At first glance, that seems like an obvious lock opportunity.  In the short term, that's  probably the right idea, but there are other narratives to consider.  Those are discussed in today's video, but here's a sneak peek: the traders most interested in buying large amounts of bonds could be the same traders helping push yields higher today.

Econ Data / Events

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

  • ISM Manufacturing 57.5 vs 58.0 f'cast, 59.3 prev

  • Construction Spending 1.3 vs 0.8 f'cast, -0.5 prev

Market Movement Recap
08:52 AM

Weaker overnight, following European yield spike at 1am.  Strong move in stocks before that, but limited correlation.  Bonds recovered a bit by 8am, but have been off to the (selling) races since then.  Europe is still leading the charge.  New-month trading and corporate bond issuance are hurting.  10yr up 3bps to .872 and MBS are down 6 ticks (.19), but only after rallying a quick 3 ticks in the last hour yesterday (so, it's more like they're only down 0.09).

10:07 AM

Snowball selling continues in Treasuries.  MBS are vastly outperforming, but unavoidably forced to follow the weakness.  Econ data had no impact.  Weakness is its own justification at this point.  New-month position taking and corporate issuance hedging hedging are the big contributors.  10yr up 6.6bps to .91% and 1.5 UMBS down 3/8ths.

02:04 PM

Treasuries tried to level off heading into the noon hour.  At the time, MBS were in the midst of a halfway decent recovery, but both have given up on any meaningful bounce back at this point.  10yr yields are up to new highs of .934% and MBS are nearly half a point lower on the day.  There are some reports of McConnell getting involved in today's stimulus bill discussions, and that makes bonds take the threat even more seriously.