Bond Markets Reluctantly Stronger After ADP Data
Treasuries were flat at the start of the overnight session, but soon rallied to their best levels in what would best be classified as "mini-snowball" buying. Volume wasn't impressive, but it did pick during the brief surge as technical "stops" were triggered forcing in more buyers (traders' preset lines in the sand that, if hit, prompt automatic buying or selling--in this case, buying).
After dipping below 2.48 just after 2am, and bouncing quickly back to 2.49, 10yr yields crept sideways and slightly higher into the domestic session--coming in the door about a bp lower than yesterday. MBS opened several ticks higher.
From there, the ADP numbers brought an expected surge in volume, and made a brief head-fake toward stronger territory. We soon saw how much hesitation we're dealing with today as both Treasuries and MBS bounced firmly before breaking last week's best levels. If it's any consolation, MBS were much closer than Treasuries. CPI data fell on deaf ears--no surprise there.
The best bet at the moment is that the combination of the week's last Treasury auction and the FOMC Announcement is serving to keep domestic bond markets much more hesitant than they otherwise might be. In fact, that's much more than just a "one day" thing, and it's no guarantee that this afternoon's events are what we're waiting for to change it.
Between now and then, we're in pretty good shape so far, just not rallying as much as we might expect given the weak ADP numbers. Fannie 3.5s are currently up 5 ticks at 102-28 and 10's are down 1.5bps at 2.49. We'll reserve judgment on the day's overall strength (or lack thereof?) until after FOMC at 2pm.