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Weaker Overnight, Bouncing Back Somewhat; Hilsenrath Article Analysis
Posted to: Micro News
Tuesday, January 21, 2014 9:22 AM

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Bond markets were weaker in the overnight session.  There was some pressure right from the start owing to a Hilsenrath story in the Wall Street Journal ("Next Cut in Fed Bond Buys Looms").   This was a standard-issue Hilsenrath piece in which the majority viewpoint is supported with logic and evidence.

This time around, it's very straightforward (unlike the May 2013 piece that predicted the Fed would "trim" asset purchases).  He leans on recent Fed speeches that have been dismissive of the latest jobs report as not enough to dissuade the pace of tapering--and rightfully so.  It ends up being a similar stance as that shared here over a week ago:

"We're most likely to find that one bad jobs report means very little in
the grand scheme of things and FOMC members have said as much. "

Nonetheless, these Hilsenrath pieces do serve a purpose in reigning in whatever portion of market sentiment may have been drifting away from the consensus.  We noted that 'drifting' last Tuesday:

"It seems that markets aren't wholly resolved on the topic of the Fed's
January meeting in 2 weeks. While it doesn't make any logical sense to
infer a change in the course of action based on last week's jobs (yet),
we can now see there's at least some of the sentiment in the
marketplace.  In other words, some players are clearly entertaining the
possibility of a softer statement from the Fed. "

That rebel alliance of anti-tapering sentiment was given pause by last night's article, and the losses are in line with it's relatively small size (i.e. not much of the market disagrees the taper continues and the early losses overnight were "not much"). 

Beyond that, however, Asian/European markets and a few big block trades added a bit of weakness for US Treasuries.  The total move 2.82 to 2.866.  We're currently back near 2.84.

Fannie 4.0 MBS opened 6 ticks weaker at 103-29 but are now back up to 103-31.  There are no significant scheduled reports on the calendar and traders will be taking most of their cues from other traders.  So far the herd is respecting the technical fences around 2.82-2.84 in Treasuries and just over 104-00 in Fannie 4.0 MBS.

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