Decent Recovery After Scary Start But Risks Remain

10yr yields were as high as 1.105% at one point today, but recovered nicely by the close (1.071%).  Similar story for MBS with significant intraday weakness giving way to only modest losses by the end of the day.  Nonetheless, until bonds show us that they're interested in rallying, the takeaway from this week is that rates have turned a short-term corner and are more likely to head higher than lower in the coming week.  That said, whenever anyone talks about the future in financial markets, "higher probability" is usually around 51%.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Core PCE Inflation (y/y) 1.5 vs 1.3 f'cast, 1.4 prev

  • Chicago PMI 63.8 vs 58.5 f'cast, 58.7 prev

  • Pending Home Sales -0.3 vs -0.1 f'cast, -2.5 prev

  • Consumer Sentiment 79.0 vs 79.2 f'cast

Market Movement Recap
08:22 AM

Stronger econ data in Europe (specifically Spain/France/Germany GDP) and new vaccine trial results from J&J (lackluster though they may be) are adding to yesterday's bond market weakness.  10yr is up 3.4bps at 1.086 and YMBS are down almost an eighth of a point already.

10:19 AM

Early weakness found support.  Stock losses at the 9:30am NYSE open helped 10yr yields bounce lower froma 1.105% ceiling (now down to 1.084%).  UMBS are an eighth of a point up from the morning's lows, but still down nearly an eighth on the day. 

01:52 PM

Bonds seem to be shying away from a stronger recovery.  Mid-day gains have stalled out in the 1.07+ area for 10yr yields.  Same story for MBS with prices topping out around the noon hour and dialing back slightly since then.  Stocks are down 2%, and we should probably consider that bonds would typically be doing better in that case (another cautionary anecdote for the absence of a stronger bond rally).

03:10 PM

Some weakness at 3pm due to month-end trades.  It doesn't look like sustained momentum--just a blip, which is typical of month-end moves at 3pm.

05:09 PM

Month-end weakness proved to be a head-fake and yields are back to intraday lows.  MBS prices are near their best levels with 2.0 coupons down only 2 ticks (0.06) on the day.