Bond Markets Mostly Flat Overnight; Stronger This Morning
If you typically cruise multiple financial news sites, you might notice almost every one has a headline with the phrase "ahead of New Home Sales." Without exaggeration, that's because there's no clear motivation for the movement we've seen so far (though we'll discuss some 'suspects' below), and there's nothing else on the calendar or in headlines to discuss.
With markets closing 3 hours early today, a 3-day weekend ahead, and nothing but New Home Sales on the econ calendar, bond trading is in 'holiday mode' for the most part. While today's version isn't quite the same as the wintertime half-days (which really obliterate volume and participation), we're still left with a market that's moving serendipitously and with little by way of conviction behind the scenes. In other words, the path of least resistance for traders is the one to the door.
When traders are trading like they don't want to be at work (or when their subordinates are trading because they're the only ones left), we generally see two things: an absence of big, trend-altering moves, but also very little resistance (and sometimes 'reason') to moves that stay inside the trend.
So far, this morning fits both of those conditions. Bonds were just a bit stronger overnight, and improved further as the domestic session got underway. The best justifications for the additional strength are the technical picture and tradeflow needs surrounding today's options expiration.
That technical picture was outlined briefly in The Day Ahead. Simply put, by moving a bit lower this morning, 10yr yields are choosing to remain inside the 'railroad tracks' marking the post-range-break consolidation pattern. Moving much higher would threaten to break that mini-trend, or at least make it look less tidy.
Fannie 3.5s are 4 ticks higher currently at 102-18 and 10yr yields are down 2.3 bps at 2.532. Bond markets close at 2pm officially. Unofficially, 2pm usually ends up being more like noon on early close days.