Wednesday's 10yr Auction Could Cast a Big Vote on a Bounce

With bonds coming into the session in much stronger shape, and with yields holding underneath recent highs at 1.62% for almost 2 weeks now, it's fair to start wondering if 1.62% is as high as we go for a while.  Fortunately, one of the best possible litmus tests is on the docket for Wednesday with another record slate of 10yr Treasury notes to be auctioned.  While today's strength is certainly hopeful, we'd wait to see how things are looking tomorrow afternoon before considering any adjustments in the outlook.  We've been in similar positions recently only to get burned (17th times a charm though, isn't that what they say?).

Econ Data / Events
Market Movement Recap
08:30 AM

Much stronger overnight with most of the gains seen during European hours.  10yr yields are down 7bps at 1.533 and 2.5 UMBS are up a quarter of a point.

10:57 AM

After a flat morning at stronger levels, bonds are giving up some gains.  There are several culprits to investigate, but the most salient would be news that the House could vote on the $1.9t covid bill within 24 hours.  The bump is modest--a few bps in 10yr yields and an eighth of a point in MBS.  Both are still green on the day (MBS up just over an eighth and 10yr yield down 4bps).

02:03 PM

Surprisingly big gains in longer-term bonds after the 3yr Treasury auction (not big in outright terms, but we almost never see 10yr yields react to a 3yr auction).  10s are 6.4bps lower on the day at 1.54% and UMBS 2.5 coupons are still up an eighth (Treasury demand = less relevant for MBS).

04:11 PM

Late day weakness in MBS specifically thanks to roll-day liquidity issues.  MBS hit lows around 2:45pm and have bounced back fairly well since then (to the same +.125 as the last 2 updates).  10yr yields have been fairly steady near 1.54%.  Attention is turning toward tomorrow's 10yr auction at 1pm ET.