Great Bounce After Auction. What Now?

We were hoping--perhaps even expecting (to some extent)--to see the recent uptrend in yields give way to period of correction either today or tomorrow.  "Period" is intentionally vague as we have no idea how long the good vibes will last.  All we know is that today was the day and the 10yr auction was the catalyst.  The video discusses the takeaways in greater detail.  The most important is that the strength of today's auction should not be taken as a guarantee of a swift recovery in rates as much as a suggestion that the recent selling trend should cool off.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Monthly CPI 0.5 v 0.5 f'cast, 0.9 prev

  • Core Annual CPI 4.3 vs 4.3 f'cast, 4.5 prev

Market Movement Recap
08:53 AM

Bonds slightly weaker in Asia, then flat in Europe.  Rallying back into positive territory after CPI data.  10yr down 1.2bps at 1.342 and UMBS 2.0 coupons up 1 tick (0.03) at 100-30 (100.94).

01:15 PM

After a slow, sideways grind for most of the day, bonds are surging after the 10yr Treasury auction.  Rather, they surged.  Yields bottomed at 1.302 and are at 1.320 currently (down 3.4bps on the day).  2.0 UMBS are up almost a quarter point.

05:14 PM

Bonds gave back a portion of the post-auction gains, but remained in positive territory through the close.  The back-and-forth was more pronounced in Treasuries whereas MBS retained most of the gains.