Sobering Reminder About Rising Rate Trend

By yesterday afternoon, the bond market had managed to string together several of the most reassuring days of 2021.  10yr yields were close to 1.50% by the end of the day and the next significant ceiling at 1.62% seemed safely overhead.  But only a few hours into the new trading day, 10yr yields surged up to 1.64+, the highest levels in more than year.  Average mortgage rates are close to being able to say the same (highest in 11 months).  Today's rout provides a wake up call as to the nature of the rising rate environment.  

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Core Producer Prices (y/y) 2.5 vs 2.6 f'cast, 2.0 prev

Market Movement Recap
08:51 AM

Much weaker overnight with big hits coming at random times for no apparent reason (speaks to embedded bearish momentum, technicals, and positioning).  10yr up almost 7bps to 1.604%.  UMBS 2.5 coupons down a quarter point.

10:35 AM

10yr has broken the 1.62% ceiling, triggering additional stop-loss selling (up and over 1.63%).  UMBS 2.5s were down nearly half a point at their weakest levels, but have recovered a few ticks in the past few minutes.  Either way, not what we were hoping to see this morning on top of earlier weakness we weren't hoping to see today. 

02:48 PM

All of today's damage was done by 10:30am and things have been very flat since the last update.  At this point, whatever happens in the last 2 hours of trading doesn't have any major implications for next week.  10yr is up 10bps at 1.63% and 2.5 UMBS are down more than 3/8ths of a point at 103.