Why Bonds Really Rallied on Thursday

Thursday's big bond rally was not a foregone conclusion destined to follow the tapering announcement, although positions taken in the run up to the announcement left the market vulnerable to the friendly shock provided by the Bank of England (BOE).  The BOE announcement and subsequent comments dominated the momentum early in the US session with British 10yr yields dropping roughly 14bps versus "only" 8bps for US 10s.  This was a story of imbalanced short positions getting forced to cover (the proverbial short squeeze).  While that's not a durable justification to rally, it's better than a big nasty sell-off.  

Econ Data / Events

  • Fed MBS Buying 10am & 1130am

  • Jobless Claims 269k vs 275k f'cast, 283k prev

  • Labor Costs Q3 8.3 vs 7.0 f'cast, 1.1 prev

Market Movement Recap
08:25 AM

Bonds initially flat overnight, then stronger with Europe.  BOE announcement helped.  10yr down almost 4bps to 1.565 and 2.5 UMBS up nearly a quarter point.

10:00 AM

Slightly better gains for Treasuries now with 10yr down 5.4bps at 1.549.  MBS are lagging with 2.5s up only 6 ticks (.19). 

02:42 PM

Additional gains after 1pm with 10yr yields down nearly 8bps to 1.526.  MBS up 10 ticks (.31) with 2.5 coupons just shy of 103.00