Treasuries and MBS have spent the past 2 days trading well inside the range set by last Friday's volatility (big rally following CPI data).  Unfortunately, the central tendency during those 2 days has been toward moderately weaker levels.  This casts some doubt on what looked like a clear signal on Friday, but it's too soon to rule out additional gains based on today's trading.

After all, bonds did manage to make it back to unchanged in many cases.  Fannie 3.5 MBS were perfectly unchanged and 10yr yields ended the day just barely into positive territory.  Things looked more bleak around 9am this morning when bonds had taken a noticeable turn toward weaker levels.  

There were no clear fundamental justifications for the movement at the time (import price data was 20 minutes before the bigger moves in bonds), but the declining volumes and the lack of correlation with stock market movement suggest bond-specific tradeflows.  In other words, some big traders made some big trades just before 9am and these served as inspiration for other traders who'd been waiting for a sign.  The lower volume environment allows such trading to have a bigger effect on prices and yields than it otherwise might. 

In general, the focus for bond traders has been the underperformance of shorter-term yields vs longer-term yields (curve flattening).  One of the simplest conclusions to draw from such movement is that traders increasingly see a rate hike in the short term but not a corresponding uptick in growth or inflation.


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
103-02 : +0-01
Treasuries
10 YR
2.2998 : -0.0092
Pricing as of 10/17/17 4:51PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
8:57AM  :  ALERT ISSUED: Negative Reprice Risk Already a Consideration for Early Lenders
8:44AM  :  Slightly Weaker After Import Price Data; Near Critical Support Level

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "check out where Taylor rule would have had rates since 2012... https://www.frbatlanta.org/cqer/research/taylor-rule.aspx?panel=1"
Christopher Stevens  :  "Taylor would be awful with his interest rate forecasting model"
Hugh W. Page  :  "I'm leaning towards Taylor but really it;s a toss up."
Christopher Stevens  :  "My bet is on Powell"
Christopher Stevens  :  "Trump meeting w/Yellen Thursday"
Matthew Graham  :  "RTRS - TRUMP'S POOL OF FED CANDIDATES INCLUDES CURRENT CHAIR YELLEN, ADVISER COHN, FED GOVERNOR POWELL, FORMER FED GOVERNOR WARSH, STANFORD ECONOMIST TAYLOR - SOURCE FAMILIAR"
Victor Burek  :  "TRUMP EXPECTED TO ANNOUNCE FED DECISION BEFORE HE LEAVES FOR ASIA TRIP NOV. 3 -WHITE HOUSE OFFICIAL"