Today offered a triple or possibly quadruple-whammy for bond markets, almost exclusively in the form of overseas events. The weakest among these was the notion that yesterday's announcement of new sanctions against Russia was a profound market mover. While that's technically possible, it wasn't plainly evident in overnight trading.
By the start of the domestic session, bond markets were only in slightly stronger territory. The next boost was the only domestic consideration today. June Housing Starts came in much weaker than expected and broke below a trend of growth that had been intact since the beginning of 2011. Bond markets improved on the data, despite a stronger-than-expected Jobless Claims report.
Trading proceeded in relatively uneventful fashion until the day's first geopolitical catastrophe unfolded when news hit of a Malaysian airliner being shot down on the Russia/Ukraine border. this set the tone for the rest of the day as bond markets rallied steadily and stocks moved lower.
This brought 10yr yields right to the important 2.47% level before the last major geopolitical headline came out. Just after 3pm, Al-Jazeera reported that Israel launched a major ground/air/sea assault on Gaza. Market reaction was sporadic, peaking in intensity at 3:15pm, but never really doing anything but carry yields and stocks lower. Israel confirmed the news at 3:40pm.
As is always the case when it comes to global flights to safe-haven assets, Treasuries outperformed MBS handily. Even so, MBS weren't completely tuned out from the rally, managing to gain 3/8ths of a point by the end of the day. This brings Fannie 3.5s to 102-15.
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