Weaker Overnight and After Data; Trying to Establish Support
MBS are attempting to establish a floor within a tick or two of 103-18 in Fannie 4.0s. Meanwhile, 10's are trying to form a ceiling in the mid 2.69's after a Retail Sales report that was fairly open to interpretation (weaker headline, but positive revision and positive internals).
If anything the sum of Retail Sales internals and revisions is a moderate net-negative for bond markets, and the 8:30am resulting movement reflects that, but we were already in significantly weaker territory heading into the data.
This had to do with a relatively nasty overnight session. Right from the outset. The Nikkei was moving higher and Yen, weakening. US Treasuries endured gyrations from the Asian hours with relative aplomb, but began to stumble at the European open. Bunds (Germany's 10yr debt) were higher in yield out of the gate and surged higher still after an important piece of economic data (ZEW Sentiment Survey) printed 42.0 vs 40.0.
There again, US Treasuries responded less to foreign market considerations--as would be expected--but they still responded. By 8:15am, yields reached 2.665. At the 8:20 CME open (7:20am Chicago time), yields notched a quick 1.5bps higher before zooming another 1.5bps higher after Retail Sales.
The most hopeful development at the moment is that the subsequent highs continue to hold. 10's are currently at 2.677 and Fannie 4.0s are down only 7 ticks on the day at 103-19. Fannie 3.5s are down 12 at 100-10. The most ominous development is that current levels are in line with previous support. In other words, 10's are bouncing on a floor that used to be a ceiling (from 8:20-8:30), so we need to move through it quickly to avoid the suggestion that we're pivoting toward higher yields.