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Bond Markets Slightly Stronger Overnight Thanks to an Old Friend
Posted to: Micro News
Friday, September 27, 2013 9:32 AM
Markets can't help but be painfully aware of the 'government shutdown' debate, and if for no other reason than implications on growth, it's having a moderate positive effect all other things being equal.
Another 'old friend' has reentered the realm of relevance, though we're not sure how long it will be the case. The friend: Italy, or more appropriately, Italian political drama--something that's proven to be a great temporary benefactor of US bond markets. Most recently, ratings downgrade rumors have been swirling and Italian credit spreads gapped out last before and after a rough sovereign debt auction. Treasuries followed that action, albeit indirectly (in that weakening Italian debt caused safe-haven demand for German debt, causing spillover demand for US debt).
Before that, Treasury yields were slightly higher during the Asian hours of the overnight session, but European hours left them in stronger territory heading into 8am. MBS opened a few ticks higher than yesterday as a result.
The morning economic data--Incomes and Outlays--was a non-event, coming in perfectly in line with the forecast. Position-squaring ahead of Monday's 'month-end' session has done more to shape the early price action than anything, though some accounts look to have re-shorted Treasuries this morning after profits were taken at 2.62.
Consumer Sentiment data is next up at 9:55am. Fannie 3.5s are up 3 ticks currently at 101-18 and 10yr yields are down just under a bp at 2.639.
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