• Bonds continue sideways grind in bigger picture
  • Lots of focus remaining on Oil prices in news and analytical community
  • Is it justified?

As bond markets continue operating in a painfully narrow range following last week's FOMC Minutes, there are only so many ways to discuss rate movement in and of itself.  So perhaps it shouldn't be too surprising to see rate movement discussed in the context of other markets.  "Oil" has been a perennial favorite--in 2016 especially--and today's first chart leaves no doubt as to why that is.  

Particularly, look at the top section first, which shows the extreme correlation seen between oil, stocks, and bonds.  All of that transpired right at a time when market participants were scratching their heads as to the source of the movement.  Given that oil was "there" and moving in almost perfect harmony with bonds, the thesis quickly took root that oil was pulling the strings of the rest of the global financial market.  Incidentally, the global financial market has gone on to prove it's not nearly as concerned with oil as the level of coverage suggests.

2016-5-24 crude

In addition to European bond markets being a poster child for "global growth malaise," the more recent market mover has been a resurgence in Fed rate hike horse trading.  Part of 2016's early strength had to do with rapidly decreasing odds of a 2016 Fed rate hike.  As soon as those odds bounced, so did longer-term rates.  In fact, the "consolidative" ranges seen in 10yr yields and MBS are just smaller versions of the consolidative range in Fed rate hike expectations. The following chart expresses these expectations in the form of 2yr yields, but would work just as well with Fed Funds futures.  

2016-5-24 rate hike

As you can see, 10's have been doing a good job fighting off the increasing rate hike expectations, but if expectations increase more from here, it will add serious pressure on 10's to break out of their own consolidative range.  All of this takes heavy precedence over something like today's New Home Sales data, although the balance of economic data in the next few weeks will generally inform rate hike forecasts.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
102-07 : -0-03
10 YR
1.8540 : +0.0140
Pricing as of 5/24/16 9:10AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, May 24
10:00 New home sales-units mm (ml)* Apr 0.523 0.511
10:00 New home sales chg mm (%)* Apr 2.0 -1.5
13:00 2-Yr Note Auction (bl)* 26