After weakness pervaded the past two sessions, bond markets have managed to find their footing before giving back any more of last Thursday's Ukraine-inspired improvement. It was geopolitical risk that once again helped nudge trading levels out of their narrow morning range as the morning's domestic economic data was a non-event (flat CPI and mixed Housing Starts data).
MBS specifically, made up for some underperformance yesterday. Fannie 4.0s are heading out just over yesterday morning's highs while 10yr yields haven't come close to their best levels of the day yesterday. 10's particularly, look to have tradeflow considerations resulting in technical levels at 2.67, which blocked further descent in the afternoon. That said, there's also 2-day support overhead now at 2.70.
Apart from geopolitical considerations, there's the matter of tomorrow's FOMC Announcement. While market participants don't really see any chance of deviation from the tapering plan, there is broad-based anticipation that the Fed will change the forward guidance (the "if's and then's about the future policy path) to focus more on qualitative ideas and less on volatile unemployment rates. A move in that direction is assumed to be more bond-market-friendly than not, and that could account for some of today's positivity as well.
All that having been said, we don't really have to account for today's gains by connecting dots to individual cause & effect relationships. Instead, it's enough to simply note that this is typical behavior for bond markets when pulling back from a reasonably sharp rally (i.e. there are 1-3 days of a corrective bounce followed by a smaller correction ending the bounce). Today is that smaller correction and the implication is a bigger move into the 2nd half of the week.
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