It was a pretty interesting session for how narrow the range continues to be in bond markets--interesting both for bonds themselves and for the analysts scrambling to make sense of the movement. 

Apart from last Friday's CPI data, there hasn't been an unequivocal market mover for bonds.  There hasn't been an obvious theme with a predictable reaction.  That resulted in the collective Western analytical mindset concluding that it must be something Western behind the movement.  The leading Western candidates for drama included Catalonian independence with Brexit headlines being a distant second.

I was pretty dismissive about Catalonia as a market mover until this morning, because the overnight surge in bonds (and massive drop in stocks) lined up perfectly with the 4am ET deadline for Catalonia to withdraw its declaration of independence.  Pretty esoteric.  Pretty complicated...  Kind of a stretch, even... but with US market participants waking up to widespread reports of Catalonia's importance from European market participants, the headlines wrote themselves.

Then this afternoon, an MBS Live member posed a question about China's central bank warning of a potential asset price collapse.  Who's China, again?  Everything was supposed to be about Catalonia I thought.  

But in following up on the China question, it looks like Chinese equities markets are a far better explanation of overnight market movement than Catalonia.  The red line in the chart below is Hong-Kong/Shanghai equities futures, and the chart serves as a great reminder that just because most analysts tell you markets are moving for one reason, it could be something completely different.  

2017-10-19 close

So does this conclusively mean China is the new Catalonia?  Not necessarily.  We'll discuss that in greater detail in tomorrow morning's opener.  We could actually use the same red line to make a case against rapidly changing our focus (I scaled this chart to reinforce the importance of China, but if I zoomed it out, it would contradict that thesis at times).  Still, given the pace of today's move, it's going to be worth keeping an eye on both in the near-term future.

At the very least, we know the afternoon movement was due to an article claiming that Fed's Powell is a frontrunner to replace Yellen (according to sources familiar with Trump's interviews of potential Fed Chairs today).  The net effect of all of the above was modest improvements for Treasuries and MBS, and no conclusive momentum emerging for better or worse since the selling spree from early September leveled off in early October.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
102-29 : +0-03
10 YR
2.3178 : -0.0212
Pricing as of 10/19/17 5:10PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:03PM  :  Behind the Afternoon Volatility: Powell Headlines
3:54PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
1:06PM  :  ALERT ISSUED: Negative Reprice Risk Becoming a Consideration
8:56AM  :  Bonds Improve Overnight; Now We Can Talk About Catalonia

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "I missed Teree's question earlier today, and seeing as how I absolutely hate it when someone with the mic ignores really great info they neglected to mention, I wanted to call attention to that really great info I neglected to mention. Chinese equities arguably led the charge even MORE than the Catalonia issue overnight. Thanks for the great question Teree."
Matthew Graham  :  "tough call. It would heavily depend on bigger-picture risk tolerance of the client. If you were waiting for a break above 2.35-2.37 yesterday and kept floating because it never came, then today is no different. If you were hoping to squeeze out any little price improvement and lock it up, then lock it up!"
Dominick Cordone  :  "I locked last night, so I say lock em"
Timothy Baron  :  "Lock before impending negative reprices, or wait and see if that's truly a head & shoulders pattern on the 10 yr 5 day chart?"
Teree L. Johnson  :  "will this maybe chinese bubble be an issue for the MBS?"