Bond Markets Hovering Near Unchanged Levels, FOMC Looms
Treasuries tread water for the first few hours of the overnight session, but began rising in yield with German Bunds just after 2:30am. The tone was moderately supportive for peripheral markets as Italy had a decent 1yr debt auction. But while tightening peripheral spreads (Italian/Spanish/Greek/etc. debt yields moving closer to German benchmarks) generally coincide with weakness in the Core, higher Treasury yields overnight look to be a function--at least in part--of the impending big ticket events in today's session.
There's good technical evidence for this seen in the relationship between German Bunds and US 10yr Treasuries. TSYs were already on the rise, relatively, but specific to last night, after being in lock-step with Bunds out of the gate, TSYs stayed higher in yield while Bund yields moderated following weaker-than-expected Eurozone industrial output. Although TSYs held a supportive ceiling heading into domestic hours, they're clearly favoring a defensive stance ahead of today's 10yr auction (an early one at 11:30am) and FOMC Announcement.
10's were several bps higher out of the gate this morning, basically bouncing along their overnight ceiling into US trading hours. Fannie 3.0 MBS opened in line with yesterday's lows but quickly headed back to unchanged levels (realized they weren't Treasuries? Didn't have to freak out as much over today's events?) and are now 3 ticks better at 104-31+. 10's are still slightly higher than yesterday at 1.661, as are S&P futures, up about 5 points from 4pm levels.
Morning data passed mostly without a trace, as expected, but if anything, the significantly lower than expected Import Prices were more supportive than not. 10r Auction at 11:30am and FOMC Announcement at 12:30pm. The default expectation is for $45 bln of Treasury purchases to continue. Anything other than that could have a surprisingly big effect on trading levels (read more...
). The FOMC Member Forecasts are released at 2pm and Bernanke begins his press conference at 2:15pm.