Brexit Behind Selling Spree, But Bonds Defend The Ceiling

While headlines regarding the potential veto of the covid relief bill got plenty of attention in the news, it was actually Brexit that accounted for most of the market movement.  Early reports from several sources suggested both sides were finally in agreement and that a deal could be finalized as early as tonight.  With that, European yields popped higher, bringing equities and US yields along for the ride.  The selling spree in bonds was over by 11am and the rest of the day was steady to slightly stronger (both for Treasuries and MBS).  

Econ Data / Events

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

  • Core PCE 1.4 vs 1.5 f'cast, 1.4 prev

  • Durable Goods 0.9 v 0.6 f'cast, 1.8 prev

  • Jobless Claims 803 vs 885 f'cast, 892 prev

  • New Home Sales 841k vs 995k f'cast, 945k prev

  • Consumer Sentiment 80.7 vs 81.3 f'cast

Market Movement Recap
08:11 AM

Bonds started stronger in the overnight session but gains reversed when Europe came online.  Treasuries are starting the domestic session perfectly unchanged.  MBS are an eighth of a point weaker, but there's nearly an eighth of a point between buyers and sellers (illiquidity), so that could change quickly.

09:49 AM

No reaction to econ data, but Brexit headlines and the 9:30am NYSE open have conspired to cause some abrupt weakness in the bond market.  10yr yields are challenging the .96% ceiling and UMBS 1.5s are down almost a quarter point on the day (but only .16 from this morning's highs).

01:34 PM

Selling pressure mostly ran its course by 11am (the close of the EU trading session), which is not a surprise given that most of the weakness was driven by Europe.  There hasn't been an impressive bounce back in the other direction though.  10yr yields are still at 0.96% and UMBS 1.5s are still down almost a quarter of a point on the day.

04:01 PM

Treasuries and MBS at best levels since morning selling spree.  Weakness in stocks is helping (S&P futures back to unchanged).  MBS down only an eighth now and basically in line with yesterday's lows.  Treasuries underperforming, but up only 2.2bps on the da at .943%.