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Bond Markets Under Slight Pressure From Rising Stocks
Posted to: Micro News
Monday, December 17, 2012 9:59 AM

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Treasury yields and equities futures kicked off the overnight session in their highest territory, ostensibly due, in part to news of a Fiscal Cliff proposal over the weekend. While it was rejected by the White House, it did still signifiy some level of progress in the ongoing negotiations. But the real market mover during Asia's opening hours was the election in Japan, which saw the LDP party score a landslide victory in elections over the weekend. Risk markets rallied on the implication that the elections put the stimulus-friendly Shinzo Abe back in the Prime Minister seat.

As is frequently the case, the onset of the European session brought a shift in tone, this time in a positive direction for bond markets. The move wasn't huge, but was good enough to get 10yr yields down from 1.734 highs to 1.714 lows.

10's made it to the domestic session near those lows and MBS opened roughly a tick weaker than Friday's latest levels. Since then, the morning trade has been choppy and without much regard for economic data. If anything, Empire State Manufacturing took a bit of a bite out of equities futures and helped bond markets hold their ground. But the cash open saw equities move higher, which pressured bond markets back to their weakest levels of the overnight session.

If the current highs and lows marked the absolute boundaries of the session, it would be an incredibly sideways and boring day. There's no remaining economic data, though there are two Fed speakers as well as "Twist" buying from 10:15-11:00am in the 8year range.

MBS, specifically, are holding up a bit better than Treasuries at the moment, but even the latter may be attempting to establish some technical support in the mid 1.72's despite advancing stocks. Fannie 3.0's are nearer their highs of the morning, down only 2 ticks at 104-21, but trading has been sparse so far.

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