Bonds Defy Logic, Rallying Nicely After Central Banks Tighten

There are only so many ways to explain what happened today and those explanations go so far in accounting for counter-intuitive movement.  Specifically, bonds rallied despite 2 hawkish central bank announcements (which follow hard on the heels of yesterday's hawkish move from the Fed).  This required stock market weakness and a shift in asset allocations as the last vestiges of 2021's normal liquidity levels dry up for the holidays.  An abundance of short positions (and a subsequent short squeeze) played a strong supporting role.

Econ Data / Events

  • Fed MBS Buying 10am, 11:30am, 1pm

  • Philly Fed Index 15.4 vs 30.0 f'cast, 39.0 prev

  • Jobless Claims 206 vs 200 f'cast, 188 prev

  • Housing Starts 1.679m vs 1.568m f'cast, 1.502m prev

Market Movement Recap
08:51 AM

Slightly stronger early in the overnight session.  Gains erased after Bank of England rate hike.  10yr unchanged at 1.46+.  MBS up almost an eighth.

10:52 AM

Nice rally at 9:30am after modest strength in the previous hour.  10yr now down 2.5 bps at 1.433 and 2.5 UMBS up nearly a quarter of a point.

02:39 PM

No new gains in Treasuries, but MBS continued higher into the 1pm hour.  Leveling off since then with 2.5 coupons up more than a quarter of a point.