Bonds Push Back Against AM Weakness, But Risks Remain

Yields were breaking higher as the domestic session began with traders citing the European Central Bank (ECB) as the primary source of motivation.  The ECB changed its stance on one of its bond buying programs in a way that leaves the door open for less accommodation.  ECB President Lagarde also offered a few relatively upbeat comments on inflation/growth potential.  The losses aren't too threatening at face value, but they contribute to an ongoing inability on the part of 10yr yields to get below the 1.075% floor.  Until that floor is broken, it suggests strong confirmation of the rising rate environment. 

Econ Data / Events

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

  • Jobless Claims 900k v 910k f'cast, 926k prev

  • Housing Starts 1.669 vs 1.560 f'cast, 1.578 prev

  • Philly Fed 26.5 vs 12.0 f'cast 9.1 prev

Market Movement Recap
08:37 AM

Bonds were calm and flat in Asia but began losing ground in Europe.  The ECB's change to PEPP (more...) is as good an explanation as any.  8:30am Econ data was stronger, but bonds didn't care.  10yr up roughly 3bps with at least half the weakness following the ECB announcement.  MBS are down about an eighth of a point.

10:55 AM

Nice bounce back now as US bonds push back against EU sell-off.  MBS are outperforming (now UNCHANGED on the day).  10yr still 2+ bps shy of turning green, but down more than 2bps from the highs.

02:13 PM

A bit of weakness since 11:30am, but it's more noticeable in 1.5 coupons vs 2.0.  Total losses from intraday highs are still less than an eighth of a point.  10yr showing no signs of panic, up 2.7bps on the day at 1.104%.