Snowball Rally For Bonds! Why? And What Next?

Heading into today, we expected the bond market to ignore potentially stronger Retail Sales data.  Not only did bonds overlook the big beat (9.8 vs 5.9 f'cast), but they actually rallied in response.  This was made all the more remarkable by the presence of 3 other better-than-expected economic reports that came out at the same time.  Bonds went on to experience a full-fledged snowball rally.  In today's huddle, we'll talk about what that means, what's behind it, and what might be next.  

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Retail Sales 9.8 vs 5.9 f'cast, -2.7 prev

  • Jobless Claims 576k vs 700k f'cast, 769 prev

  • Empire State Manufacturing 26.3 vs 19.5 f'cast

  • Philly Fed 50.2 vs 42.0 f'cast, 51.8 prev

  • Industrial Production 1.4 vs 2.8 f'cast -2.6 prev

  • NAHB Builder Confidence 83 vs 83 f'cast

Market Movement Recap
08:45 AM

Bonds were modestly stronger overnight and are now much stronger (paradoxically) following a quadfecta of upbeat economic data.  10yr yields down 3.5bps at 1.599%.  2.5 UMBS up an eighth at 103.41.

10:22 AM

Rally accelerated after breaking 1.585 technical level.  10yr is currently down 6bps at 1.574.  MBS are underperforming (normal, considering circumstances) with 2.5 coupons up just shy of a quarter point on the day.  No new news. This is all momentum and tradeflows at this point.

12:30 PM

More technical follow-through with some help from as-expected Treasury auction sizes (5yr TIPS and 20yr bonds).  But it's mostly a technical/momentum move based on the break of 1.62 and 1.585.  Yields are at the lows of the day now (1.55%).  MBS are underperforming, but still doing great (up 31 bps / 10 ticks).

02:26 PM

Rally is in full turbo mode with 10yr yields down 10 bps at 1.53+.  UMBS 2.5 coupons up 3/8ths.  No new news.  All momentum/technicals.