MBS Battle Back To Positive Territory After Opening Weaker
In the absence of meaningful inspiration, Treasuries drifted inconsequentially higher in yield overnight. The weakest levels were seen just before the domestic open and perfectly matched yesterday's overnight yield highs at 1.783 in 10yr Notes. Both Treasuries and MBS were already recovering by the time 8am rolled around, and were already bouncing by the time the slightly stronger-than-expected Jobless Claims data printed at 8:30am.
In other words, the Claims data didn't "stop a rally." Not only did the Labor Department note that Claims were estimated in 19 states due to the holiday, but this simply isn't the data that markets are looking for. Indeed it's time again for everyone's favorite holiday game: Fiscal Cliff headline potential!
Political leaders are back in Washington today and it just wouldn't be late December 2012 if we couldn't look forward to SOMETHING being said to inform markets' collective level of hope that a Fiscal Cliff deal--even if merely a stop-gap--is achievable before the New Year. This eventuality should be good for the most concerted movement of the week, provided that it's not one of those foregone conclusion-type headlines.
Nothing to report on that front, yet, and more expectation than guarantee that we'll even get anything actionable (but it would seem like a violation of common courtesy for Congress and the President to be back at work today without tossing at least a nugget or two toward the begrudgingly eager audience).
Until then, bond market trading seems predisposed to more of a sideways grind than a directional mission. MBS just ticked into positive territory for the first time this morning (104-23 in Fannie 3.0s), after having been as low as 104-19 earlier. 10yr yields are close to their lowest levels of the morning, currently trying to break lower past 1.765. Stocks are similarly trying to break their lows of the morning with the analogous level for S&P futures being 1415.
The next scheduled data of the morning will be the Consumer Confidence report at 10am followed by scheduled Fed Twist buying from 10:15 to 11:00am. Neither of these hold a candle to any meaningful Cliff headlines, but in the absence of the latter, could have a small, but detectable impact.