Relative to yesterday's exceptionally linear trading, prices have been much more volatile today. The overnight session was constructive for global bond markets with soft UK inflation data benefiting European and US bond markets.
MBS opened 5 ticks higher and added to the gains ahead of the morning's economic data. The Consumer Price Index was right on target, but Housing Starts were significantly stronger than expected. Markets only managed a brief reaction that say bond markets lose most of the morning gains before getting right back to the best levels.
From there, however, it's been a fairly quick, and fairly lopsided slide to new lows (or 'highs' in the case of Treasuries). Light trader participation and volume makes for a situation where big trades are having an outsized effect. In other words, we've had a few big Treasury trades, and because they comprise a bigger chunk of the day's trading than they would during more active days, they generate more momentum.
That technical explanation isn't even really necessary if we simply go back to the geopolitical nature of last week's rally and then consider that there are some geopolitically 'hopeful' headlines that came out around the same time that bond markets changed course. The fact that the morning's Housing data agrees with the weakness in bonds is just icing on the cake. It doesn't taste good, but there it is.
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