Bond markets got sucker-punched today.  Traders were on the lookout for Yellen's comments at a conference in London in the afternoon.  Instead it was overnight comments at a conference in Portugal from ECB President Mario Draghi that did the damage.  In not so many words, Draghi said

  • Things are good  in the EU.  Recovery is strengthening
  • Deflation being replaced by reflation
  • Still need accommodation, so we'll be gradual in adjusting it

Bottom line, this is early-stage taper tantrum talk--EU style.  European bonds didn't like it one bit, with German Bunds rising roughly 13bps.  Almost every last bit of upward pressure in US bond markets can thank the Europe for the inspiration.  Once European markets closed, US bonds went sideways. 

It was clear there was some hesitation ahead of Yellen's afternoon comments, but once they were deemed innocuous, bonds drifted sideways to slightly stronger, ending the day right in line with the levels seen at the European close.  Could this be a game-changer?  Tough to say without another day of heavy selling in European bonds.  Tomorrow will be critical.  Either way, risks are certainly elevated until "game-changer" status can be ruled out.


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
103-00 : -0-09
Treasuries
10 YR
2.2068 : +0.0698
Pricing as of 6/27/17 4:59PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:47PM  :  Effectively Zero Reaction to Yellen Comments
1:11PM  :  Bonds Weaker Still Following 5yr Auction
12:14PM  :  ALERT ISSUED: Negative Reprice Risk Increasing as European Bonds Disintegrate
10:48AM  :  ALERT ISSUED: Why So Much Red Today?!
8:40AM  :  ALERT ISSUED: Bonds Open Weaker. Blame Europe

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - FED'S YELLEN SAYS WE INTEND TO VERY GRADUALLY AND PREDICTABLY TO SHRINK OUR BALANCE SHEET"
Matthew Graham  :  "RTRS - FED'S YELLEN SAYS NUMBER OF REASONS TO BELIEVE INTEREST RATES WILL REMAIN LOW AS WE NORMALISE POLICY"
Matthew Graham  :  "RTRS - FED'S YELLEN SAYS WE DO FOCUS HEAVILY ON SPILLOVERS FROM U.S. POLICY INTO OTHER ECONOMIES"
Matthew Graham  :  "RTRS - FED'S YELLEN SAYS WE ARE NOT GETTING A CONSISTENT STORY ON INFLATION"
Matthew Graham  :  "I think that's generally a pretty fair assessment, MK. Sounds like what I've been saying so far this morning. A lot depends on specifics, of course. She could be hawkish and bonds could still hold ground. If that happens, it would tell us a lot."
Michael Kirsch  :  "MG, in summary if Yellen is "dovish" you anticipate bonds to rally, if she is "hawkish" and mentions improved economic conditions and inflation we can likely see resistance to be broken and some more momentum to the sell off?"
Brent Borcherding  :  "If you were to think optimistically, I'd say that the bond market has been making it's long term moves based on their perceived results of Central Bank decisions. It would not be a stretch to think Bond Markets will view less accommodating policies and negative to the global economy, thus bullish for bonds. Just a thought."
Bryce Schetselaar  :  "And we have been spoiled as of late"
Dominick Cordone  :  "still annoying"
Brent Borcherding  :  "This could be a standard move any day of the week."
Bryce Schetselaar  :  "the market cant close fast enough today"
Matthew Graham  :  "Germany 10yr sell-off now nearly 13bps"