Big Swings as Covid Squares Off Against The Fed

It was omicron vs the Fed today and bonds had a front row seat.  In the overnight session, comments from Moderna's CEO (lower vaccine efficacy expected for omicron variant) sent stock prices and bond yields screaming lower.  Then at 10am during a congressional testimony, Powell hit bonds with a one two punch, saying it was time to retire the word "transitory" when referring to inflation, and that tapering could need to be accelerated.  The latter was a shot across the bow for the short end of the yield curve as it implied earlier rate hikes.  MBS took the news far worse than Treasuries.

Econ Data / Events

  • Fed MBS Buying 10am, 11:30am, 1pm

  • Case Shiller Home Prices (y/y) 19.1 vs 19.3 f'cast, 19.6 prev
    FHFA Home Price (y/y) 17.7 vs 18.5 prev

  • Chicago PMI 61.8 vs 67.0 f'cast, 68.4 prev

  • Consumer Confidence 109.5 vs 111.0 f'cast, 111.6 prev

Market Movement Recap
08:29 AM

Yields surge lower on Moderna's CEO comments (vaccines likely less effective against omicron).  10yr down 8bps at 1.424 and 2.5 UMBS up 10 ticks (.31).

09:48 AM

Overnight gains holding with limited volatility.  No major reaction to AM data so far.  10yr down 7.3bps at 1.429 and MBS up a quarter point.

10:55 AM

Bonds losing ground quickly after Powell comments on inflation and tapering.  10yr up roughly 7bps from lows and MBS down more than a quarter of a point from AM highs.

02:56 PM

Bonds found their footing shortly after the last update and have been grinding sideways to slightly stronger since then.  Treasuries are outperforming as the curve flattens.  10yr down 6bps at 1.443.  MBS down 2 ticks (0.06) at 102-16 (102.5).