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Bond Markets Fighting To Hold Ground As Europe Pushes Risk-On Trade
Posted to: Micro News
Thursday, November 15, 2012 9:43 AM

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The overnight session was mostly slow, but mostly negative for bond markets. GDP for the entire Eurozone fell 0.1 pct though France and Germany managed 0.2 pct increases. That was enough to fuel a risk-on bid in European hours in addition to some big trades that were unrelated--at least in timing--to any reported data or events.

All that aside, 10yr yields traded inside yesterday's range all morning and have been holding ground so far in the domestic session. MBS walked in the door several ticks weaker than yesterday's latest levels, but have since battled back to unchanged levels.

Much weaker than expected Jobless Claims numbers made the morning interesting stateside as mega-storm Sandy apparently had a much bigger effect than economists predicted, causing the biggest week-over-week increase since 2005 and the highest outright level since April 2011.

Bond markets rallied on the data, but faced two countercurrents. The first was from the data itself, which was such a jump, and so far from expectations that it makes it hard to filter out organic economic weakness vs temporary impact from Hurricane Sandy.

Then there's Europe... European news and events continue to provide a nagging, persistent push in a "risk-on" direction this morning. It's nothing major, but it is pushing back on the post-claims weakness after comments from Spain's Economy Minister saying that Spain has no need for money from the IMF. German Bunds spiked on the headline and the Euro rose to its highest levels in a week.

While not having any major effects on bond market trading at home, the risk-on moves don't help yields move lower. Stocks are moving higher after the 9:30 open as well, but not triumphantly so with S&P futures about 5 points higher than yesterday's close. 10yr yields are up just under 2 bps at 1.608. Fannie 3.0 MBS are up 1 tick at 104-26. Philly Fed data is coming up at 10am, and given the bigger than expected hit to Claims, one might reasonably expect a bigger jump there as well.

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