Next week promises to be big. Even if the events don't 'agree' with each other enough to spark a major rally or sell-off, the potential is there. Due to last week's geopolitical headlines, bond markets arguably made it down to the lower end of the rate range a bit early to set up their chairs for next week's parade of data. That created a risk that they'd wander around a bit in the meantime and possibly even find new seats.
In other words, yesterday's weakness ran the risk of starting a small correction ahead of what everyone knows will be a big week in terms of data and events. This was probably a viable possibility heading into today, but bonds got help from several friends. These include a rally in European debt on weak data abroad, weakness in domestic equities markets, and internal components of today's Durable Goods data that suggest another downward revision for next week's GDP reading.
Finally, as that 'help' kept showing up, traders that had been betting on a move higher in rates were forced to cover those 'short' bets by buying bonds. This in turn pushes rates that much lower and forces the next wave of short-covering. It's a virtuous cycle as far as mortgage originators are concerned. MBS soaked up a fair amount of the positivity and are currently heading out roughly a quarter point in better territory.
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