Bond Markets Near Unchanged Levels After Quiet Overnight Session
Treasuries began the overnight session trading flat during Asian hours in quiet trading. Activity picked up somewhat into European hours with stocks and bond yields at 3am, bottoming out by 4am.
Since then, Treasuries have gradually weakened, stopping precisely at overnight high yields, just under 1bps higher than Tuesday's latest yields (currently 2.66%).
The Durable Goods report was actually a net-positive for bond markets, acting to briefly slow down the preexisting selling trend, together with buyers lined up at the 8:20am CME open 10 minutes earlier, but it wasn't enough to turn the very gentle tide of morning selling.
MBS began the day a few ticks into weaker territory and in concert with Treasuries just after 8:20am and similarly began selling with Treasuries just after 8:35am. None of the weakness has been too severe and Fannie 3.5s are actually 1 tick into positive territory at the moment.
The equivocal Durable Goods report places a bit more emphasis on the morning's remaining data, namely, New Home Sales at 10am.
There's an active corporate bond market environment behind the scenes today. The two important phases in corporate debt issuance as far as we're concerned, are "rate-lock selling" (where companies may sell Treasuries to lock in their effective borrowing rate) and "rate lock unwinds" (where companies buy back the Treasuries they sold earlier after the deal has been officially priced).
These phantom forces don't adhere to a set schedule, but can have enough of an impact to dictate pockets of trading activity throughout the day. From here on out, we should see more of the 2nd phase mentioned above (rate-lock unwinds) which would benefit MBS indirectly. This would have to be balanced against any preemptive selling that makes room for the 5yr Treasury auction at 1pm.