Less Volatility For Bonds (For Now)

As the week winds down, a potentially scary shift into a steeper rising rate trend seems to be averted, for now.  Today's trading was a bit weaker, but yields nonetheless held in line with yesterday's highs.  The 30yr bond auction passed with minimal reaction and the same can be said for the staggeringly high PPI number this morning (core y/y at 6.2 v 5.6 f'cast).  Bottom line, after a strong NFP in the previous week, the bond market digested a huge amount of new supply (both in terms of Treasuries and corporates), the Fed increasingly discussed earlier tapering prospects, and 10yr yields only moved up to 1.36% (as of Thursday anyway).  The "for now" caveat still applies, however.  This sort of leveling-off has appeared in the past, only to be followed by additional weakness.  In the current case, those risks depend heavily on the course of the pandemic between now and the Fed's Jackson Hole Symposium at the end of the month.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Jobless Claims 375k vs 375k f'cast, 387k prev

  • Core PPI y/y 6.2 vs 5.6 f'cast, 5.6 prev

Market Movement Recap
09:13 AM

Flat in Asia.  Slightly weaker in Europe, but likely with help from early US traders.  2bps higher in 10yr yields by 8am, and another 1bp after the 8:30am econ data.  Weakness overstated due to distortion from yesterday's auction (5 and 30yr TSYs up less than 1bp).  UMBS 2.0 down only 1 tick (0.03) now.

01:08 PM

Flat day continues for now as all of the trading took place in the same range as y'day afternoon for MBS (or y'day morning for Treasuries).  Auction was weak-ish, but not enough to cause panic.  10yr up 3.2 bps at 1.367.  MBS down just a hair.