Bond Markets In Positive Territory, Motivation Lacking
Bond markets are still struggling to identify the next significant source of inspiration for the next move higher or lower. In this morning's Day Ahead
, we lamented yesterday's oddly quiet session and mused that bond markets would remain "open to suggestion" today. So far, we're seeing a repeat of the same "weirdness," but simply playing out at slightly stronger levels this morning.
The gains overnight and this morning have been motivated by the only thing that seems to be motivating markets in this nearly data-free (domestically) week: Europe and the Risk-On/Risk-Off trade. Moves have been shallow and modest with German Bunds falling 3-4 bps in yield overnight and YS Treasuries playing some catch-up after widening out post-EU Close yesterday (all that means is that Bund yields began declining around 11am yesterday while 10yr yields held sideways or slightly higher.
Before Europe opened, Asian markets dragged bond yields gently higher to begin the night with a steady series of lower highs which is currently being tested by a positive open in US equities. The same phenomenon has MBS at their lows of the morning after opening in similarly stronger territory. Fannie 3.0s are currently up 5 ticks at 103-13. 10yr yields are down 2.5bps at 1.98 and while they're not following stocks in perfect lock-step, the two did bottom out together when S&P futures hit 1499 just before 9am (and 10yr yields dipped just briefly under 1.97).
Now with the benefit of being able to observe the morning's price action and overnight lack of news out of Europe, there's even more reason to commit to the 'wait and see" approach on the part of bond markets. So far tjey're seeing similar apathy to yesterday, simply in friendlier territory, but also some reason for that territory to be challenged by the stock lever and a moderate bounce back toward "risk-on" as the domestic session picks up steam. Waiting and seeing...