Unlike the well-forecast storm in the northeast, movements in bond markets this morning were less well-telegraphed. That said, this morning's pre market post (read it HERE), did a fairly good job of calling out the two key themes of the day: more room for weakness than positivity in Treasuries and extra volatility potential for MBS. In fact the 1.953% resistance level we mentioned actually turned out to mark the 3pm close in 10yr Treasuries. The path to get there was admittedly more circuitous than we might have imagined, however, with bond markets starting out the day well into the green only to sell off early and claw their way back by the end of the day.
The initial sell-off was VERY much a 9:30am sort of thing, suggesting heavy connection to asset allocation trading between stocks and bonds. Rate-Lock selling also weighed on Treasuries (corporate bonds are priced on spread to Treasuries and issuers are effectively shorting Treasuries via rate-lock-agreements when corporate bond pricing is announced). Combined with tenuous motivations for low yields in the morning (mostly short covering), things moved from green to red in brutally short order.
Whereas there were negatively compounding events affecting the whole bond market, there was an additional layer or two of MBS-specific negativity that took an even nastier toll on mortgage markets vs Treasuries. It was actually the combination of two layers: The roll and light liquidity that made a mess of MBS markets this morning. That messiness was apparent in most lender's first rate sheets of the day, but things got more and more sorted out as the day progressed. Some lenders repriced positively and MBS still have a fighting chance to hold over 103-00 support after the roll.
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