Just When You Thought It Wouldn't Get Much Worse

  • Staggeringly weak day for bonds.
  • 2.0 MBS coupon is now irrelevant.  2.5 is only game in town
  • Lots of general motivations to discuss (watch the video), but the 7yr auction was the only obvious moment for cause & effect
Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Jobless Claims 730k vs 838k f'cast, 841k prev

  • Durable Goods 3.4 vs 1.1 f'cast, 1.2 prev

  • GDP (revision, q4) 4.1 vs 4.2 f'cast

Market Movement Recap
09:10 AM

Modestly weaker in Asia, then significantly weaker in Europe, with 10yr yields rising more than 8bps by the open (high yield = 1.468%).  MBS are down 3/8ths after an incredibly illiquid 1st hour.  Econ data didn't have a big impact.  This is all bigger-picture momentum/snowball/technical trading.

10:58 AM

yields consolidated for the first two hours before breaking out to the high side.  Illiquidity surged in MBS and prices ticked down a bit more (2.5 coupons down 20 ticks or .625 on the day).  Baby bounce in the 10yr (down to 1.475 after hitting 1.494), but not taking anything for granted here.

01:00 PM

A bit of panic on both sides of the market with stocks down 2.2%+ and 10yr yields at 1.50%.  MBS aren't happy and negative reprice risk is a reality.  No new news behind the move.

01:26 PM

Huge losses after worst 7yr Treasury auction on record.  10yr hit 1.614 but is back to 1.50% now.  2.5 UMBS are trading around 103 (down 3/4ths of a point on the day), but liquidity is nowhere to be found.  Prices could settle anywhere within half a point of that.

03:16 PM

After a token bounce, more weakness at the 3pm CME close.  Bonds effectively back in line with weakest levels.  No particular reason.  Stocks are in the same boat.