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Bond Markets Rally Back to Best Levels; Meeting Resistance Again
Posted to: Micro News
Friday, April 4, 2014 9:27 AM

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Just an update on post-NFP volatility.  After Treasuries rallied and sold nearly 5bps in the first 7 minutes following NFP, the subsequent move has been a more stable rally back to the day's best levels, yields once again reached the 2.75's, but have bumped back up to 2.7643 

MBS were up 12 ticks to 104-03, but are back to a 9 tick gain at 104-00 at the moment.  They never sold-off quite as much as Treasuries, largely because they're not as liquid.  The latter is susceptible to far more rapid swings because more people trade Treasuries and there are more ways to do so--the most significant "additional way" being in the futures market.

Activity there suggests a good amount of short-covering fueling the rally.  That means traders who had been betting on rates moving higher were forced (or chose) to cover those bets after NFP.  That's not the best reason for bond markets to rally from a longevity standpoint, but it's not the only consideration in play. 

In plainer terms, some of the rally is fueled by temporary factors. We probably won't find out how much until next week, though clues could come as early as today based on how the rest of the morning trades.

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