Bonds Are Getting Ready to Move, Probably

Bonds are always moving, to some extent, but they haven't moved outside the 0.9's (in 10yr yields) for almost 2 weeks now.  That's likely to change by next week as traders are fairly split on whether or not the Fed will extend the maturity of its bond buying portfolio.  A bond-friendly move by the Fed would likely result in a move back below 0.9 while the negative scenario almost certainly entails a break above 1.0%.  Either way, there is still enough insulation between mortgage rates and the broader bond market that our focus is better placed on tracking and measuring that insulation.  Incidentally, it's starting to shrink.  

Econ Data / Events

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

  • Jobless Claims 853k cs 725k f'cast, 716k prev

  • Core CPI Inflation 1.6 vs 1.6 f'ast, 1.6 prev

Market Movement Recap
09:08 AM

Logical weakness pre-open following lower-than-expected increase in ECB bond buying programs.  Slight recovery heading into domestic session, but then more weakness after Jobless Claims data (paradoxical weakness due to implications for fiscal stimulus).  10yr has given up most overnight gains--now nearly unchanged.  1.5 UMBS also basically unchanged 9down 1 tick (-0.03).

11:00 AM

Losing more ground now as bonds are either nervous heading into today's auction, defensive about stimulus headlines (new one from Mnuchin a short while ago), or simply continuing to participate in a broad rotation back into riskier assets.  Treasuries just turned negative and MBS are down roughly an eighth.

12:24 PM

Treasuries stabilized and MBS recovered their losses.  Both are back near unchanged levels. There's been some correlation with stocks stalling out after early gains, but no noticeable drivers in the past 90 minutes.  Auction coming up at 1pm ET.

02:44 PM

Solid gains after 30yr auction.  Both MBS and Treasuries back in positive territory on the day.  Stocks turning modestly negative.  Key driver for bonds was the auction though.  MBS are still having liquidity issues, but it's working in their favor at the moment.