Economic data was stronger this morning with the best ISM Manufacturing "business activity" reading since 2011.  Along with comments from Fed's Powell, this kept the pressure on rates heading into the afternoon.

Then, in a classic case of "buy the rumor, sell the news" (or vice versa), bond markets "bought the news" of a likely Fed rate hike in March after selling the rumor for the entirety of the week.  

Let's break that down...

Traders were pricing in a decent chance of a Fed rate hike to begin the week.  The probability spiked on Tuesday after Dudley's comments and continued higher for the rest of the week.  By the time Yellen's speech rolled around this afternoon, rate hike odds were already as high as they could possibly be, so rates had nowhere to go but back down after she added her confirmation that a hike was likely warranted at the next meeting.

It's actually really that simple, unless you want to entertain the possibility that some traders may have been on guard for Yellen to talk about something even more sinister than a rate hike on March 15th.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
101-28 : +0-02
Treasuries
10 YR
2.4816 : -0.0074
Pricing as of 3/3/17 4:33PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:06PM  :  ALERT ISSUED: Yellen Reaction More About Volatility and Illiquidity
11:58AM  :  ALERT ISSUED: Negative Reprices Becoming More Possible/Likely
10:30AM  :  ALERT ISSUED: Negative Reprice Risk Increasing as Markets Brace For More Fed Speakers
10:11AM  :  ISM Services Stronger Than Expected; Only a Modestly Negative Reaction

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Ted Rood  :  "me three"
Ramona Hall  :  "me too"
Kevin Danforth  :  "your last update got me a lock MG, thanks as always for the service and info"
Matthew Graham  :  "OO, traders came into today pretty well assured of a March rate hike. So Yellen's potential to damage was limited."
Matt Hodges  :  "mg's last paragraph: The only remaining risk is that Fischer or Yellen mentions something new and unrelated to the rate hike. Specifically, if they address an accelerated future rate hike outlook or an accelerated timeline for curtailing balance sheet reinvestments."
Oliver Orlicki  :  "Why are we rallying"
Matthew Graham  :  "RTRS - FED'S FISCHER: SUGGESTS THERE HAS BEEN A CONSCIOUS FED EFFORT TO MOVE MARKET EXPECTATIONS ON POSSIBLE RATE HIKE"
John Tassios  :  "lot of it was priced in already. Good buying levels?"
Scott Valins  :  "sell the news!"
Timothy Baron  :  "Barring a tape bomb, it's on."
John Tassios  :  "that pretty much seals the deal"
Matthew Graham  :  "RTRS - YELLEN SAYS RISKS TO GROWTH, INCLUDING ECONOMIC CONDITIONS ABROAD, HAVE RECEDED AND THAT DEVELOPMENTS SINCE MID-2016 SUPPORT VIEW THAT FED IS ON TRACK TO REACH GOALS"
Matthew Graham  :  "RTRS - YELLEN SAYS EMPLOYMENT GOAL "ESSENTIALLY MET" AND INFLATION "MOVING CLOSER" TO 2 PERCENT TARGET"
Matthew Graham  :  "RTRS - YELLEN SAYS PACE OF TIGHTENING LIKELY TO BE FASTER THIS YEAR THAN IN 2015 AND 2016"
Matthew Graham  :  "RTRS - FED'S YELLEN SAYS RATE INCREASE AT NEXT MEETING "WOULD LIKELY BE APPROPRIATE" IF FED DETERMINES THAT DATA ON EMPLOYMENT AND INFLATION ARE CONTINUING TO MOVE IN LINE WITH EXPECTATIONS"
Matthew Graham  :  "RTRS- FED'S BULLARD TELLS WSJ THAT ECONOMIC CONDITIONS HAVEN'T CHANGED SINCE JAN. TO JUSTIFY A MARCH RATE HIKE- CNBC"
Matthew Graham  :  "Europe definitely still helping. It's a whole ecosystem, DR. Sometimes one part of it flares up, thus overshadowing other interactions, but the overshadowed interactions continue to happen. Let's put it this way though, if not for Europe, I wouldn't be surprised if US rates were over 3%. Of course you can't really empirically test that, but I think it's a safe call."
David Rudnick  :  "wasnt Europe helping rates... what happenned to that?"
Matthew Graham  :  "RTRS - FED'S FISCHER DOES NOT COMMENT ON ECONOMY, POLICY OUTLOOK IN PREPARED REMARKS"
Matthew Graham  :  "That Fed reaction lasted for less than 2 weeks and was partly driven by traders packing it up for the end of the year. In the bigger picture, the Fed hike marked the top of the rate range and much of the damage was done before it happened. Same story here: rates are rising in anticipation, but the hike itself has very limited potential to cause additional weakness (effectively none). Now... if they once again accelerate their forecasts, that could hurt, but not the hike."