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Bond Markets Holding Moderate Gains After Data
Posted to: Micro News
Friday, December 14, 2012 10:04 AM

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10yr yields were as high as 1.749 in the overnight session, but began to decline as soon as Europe came on line (2-3am New York time). Treasuries weren't willing to chase German Bunds lower in yield too quickly, but did make it back to yesterday afternoon's lows during the course of the European session. Despite that unwillingness to chase the Bunds initially, Treasuries WERE able to hold their ground at those slightly improved levels while Bund yields corrected back into more moderate territory, effectively maintaining those levels (1.725-1.735) until the domestic open.

Both MBS and Treasuries hit opening marks near unchanged levels vs yesterday's latest, but began to improve even before the economic data was released. Surprisingly, CPI data actually appears to have had a positive effect for bond markets (not that we expected a negative effect, but ANY effect from inflation data these days is rare). Markit PMI data looked to have caused an almost imperceptible pause for consideration, but flows picked up following the Industrial Production data from the Fed.

At first glance, the Industrial Production data was significantly better than expected, and markets looked as if they would trade it accordingly in the first 3-4 minutes following the release, but the report's internals--suggesting the bounce higher was largely a factor of correcting Sandy-related weakness--quickly shifted the momentum in the other direction. Stock futures fell and 10yr yields are now down to 1.7023. Fannie 3.0 MBS have seen some overhead resistance at 104-24, but currently trade 4 ticks higher on the morning at 104-23.

So far so good, then, with respect to holding technical ground mentioned in The Day Ahead. From here on out, there's little else by way of guidance, so we're either waiting for Cliff headlines or simply doing some sort of Tango with the stock lever, hoping to close inside those relatively important support levels.

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