Snowball Selling in Bonds After Mid-Week Rally Fizzles

We were looking for a friendly correction in bonds this week and it arrived on Tuesday and Wednesday.  Those sorts of corrections run the risk of being 2-day affairs and that is unfortunately shaping up to be the case this time around (a risk we discussed yesterday due to the modest weakness).  Today's otherwise inexplicable selling pressure confirms that the mid-week rally was just the bond market's way of taking a breath before singing the next verse of the selling song.  There is some small chance that traders are just closing out positions ahead of a 3-day weekend, but that's not the kind of possibility you want to bet on from a rate strategy standpoint.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Consumer Sentiment 76.2 vs 80.8 f'cast, 79.0 Prev

Market Movement Recap
08:50 AM

Bonds sharply weaker starting at 7am with 10yr yields just barely breaking 11-month highs moments ago (1.1932 vs 1.1930 on Monday).  MBS are down only an eighth of a point, which feels like a victory this morning.  No overt scapegoats for this move.  Chalking it up to technicals and snowball selling ahead of a long weekend (as well as the resumption of the prevailing uptrend after a quintessential 2-day correction).

10:35 AM

Weakness increased just a bit heading into the 10am hour, but bonds bounced to end up right in line with the worst levels from earlier in the morning.  10yr is still 1.19+ and 2.0 UMBS are still down an eighth of a point.

12:43 PM

Treasury yields attempted to rally shortly after the last update, but have been rising again since just after 11am.  With that, we're right back at the same levels from the last update!  (10yr 1.19+ and 2.0 UMBS down an eighth).  Scattered headlines (Fed's Kaplan "not out of the woods yet on labor market," Biden on generic covid relief topics, Yellen on generic global macroeconomic issues, and IMF on vaccines), but none of them had a visible impact on bonds.  The only contender in that regard was a NIH comment on vaccines potentially being less effective against certain covid variants.  If that news mattered, it didn't matter much.