More on Earlier Bout of Weakness: Corporate Credit Markets
We've discussed "corporate rate-lock selling" in the past as a source of Treasury-specific pressure. This occurs when a firm is issuing a corporate bond (taking in investment that they'll then make payments on at a rate that usually involves a benchmark like 10yr Treasuries + a margin. In a fixed rate offering, the firm may "lock in" its cost of funding by selling Treasuries.
This means they've given up the right to earn today's interest rates in exchange for cash. If prices fall and rates move higher between the time their bond offering is priced and the time it's fully subscribed , they'll have already sold at the price highs, offsetting any fall in prices and effectively "locking in" the rate at which they'll be repaying the investors in their newly issued offering.
Here's more from Reuters on today's potential rate-lock selling. (This weakness has mostly worked it's way through the market and MBS are back near unchanged levels):
(Reuters) - Prices of U.S. Treasuries
slipped on Monday as corporate issuers launched deals to try to
lock in rates ahead of this week's Federal Reserve policy
statement and key U.S. employment report, traders said.
Dan Heckman, senior fixed income strategist at U.S. Bank
Wealth Management in Kansas, Missouri, said the market would
likely trade "in a pretty tight range" unless Friday's
employment report "is incredibly weak" and persuades market
participants that the Fed won't begin to cut back on its bond
purchases until December."
Currently, many participants believe the U.S. central bank
will begin to trim the bond purchases that partly comprise its
quantitative easing policy in September.
Energy names dominated the U.S. high-grade primary market on
Monday in a week estimated to see $15 billion to $20 billion in
corporate issuance. Most of the deals are expected to get done
before the Fed's policy announcement on Wednesday and the jobs
number on Friday, said IFR, a Thomson Reuters company.