Bond Markets Slightly Weaker Into Domestic Hours
Asian hours kicked off the week of trading with a slight extension of Friday afternoon's Treasury mini-rally (experienced as flatness in MBS). China's move to increase housing costs for 2nd homes in bustling cities sapped a broad swath of Asian equities indexes, helping out bond markets marginally. The Nikkei, however, managed to improve after the leading nominee to govern the Bank of Japan said, if elected, he'd put no limit on the amount of QE conducted by the Bank in the effort to fight deflation. In addition to helping lift Japanese stocks, this was also bond-market friendly.
10yr Treasuries made it as low as 1.828 just after European markets opened but the balance of the European session was moderately negative for German Bunds and Treasuries with two big bounces at 1.2983 in Euro (slightly higher than Friday's 1.2965--a two month low). Equities futures improved after falling in concert with Asian indexes and the stock lever has been somewhat connected overnight and into domestic hours.
Volatility increased modestly in early domestic trading with 10yr yields and MBS both moving into the red after opening slightly stronger. 10's are currently down just over half a bp at 1.8515 and Fannie 3.0 MBS are 3 ticks worse at 103-18. S&P futures are still 3 points from matching Friday's 4pm levels and European markets are slowing down their late-session "risk-on" move.
There is no significant economic data scheduled for the domestic session, leaving tradeflows, technicals, and the stock lever in play for the rest of the day. In those regards, the stock lever has been relatively less connected than it otherwise might be and tradeflows have been more negative for bond markets than positive. In most ways, this is to be expected with 10's having collided with epic technical resistance in the 1.84 neighborhood. In this morning's Week Ahead
we noted that the events later in the week were more likely to make firmer technical suggestions than the relatively barren calendars earlier in the week.