Last Tuesday was not my favorite kind of day when it comes to discussing reasons for bond market movement. The tax bill was in the process of being passed in Congress, thus almost ensuring that anyone who investigated the massive sell-off in bond markets would make a connection between the two.  The only problem was that the tax bill had nothing to do with the bond market sell-off.

Unfortunately, there wasn't any great way to approach an explanation of the sell-off without bringing the market's more abstruse goings-on into the mix.  Specifically, we were dealing with the rapid evaporation of liquidity ahead of a holiday weekend as well as a widespread closing of certain trading positions that had helped longer-term rates.  

There was every possibility that last week's sell-off was simply a byproduct of year-end position squaring in thinly-traded markets, but it took a day like today to prove it.  Reason being: today is the exact same sort of day, but this time, there's no glorious headline to take on the Red Herring role.  The tax bill is still a done deal, yet bond markets found a reason to rally roughly as much as they sold last Tuesday.  The reason is the same as last week's: year-end position adjustments exacerbated by light liquidity and automatic trading triggers (i.e. sellers forced to buy after a certain amount of strength).

Neither day is of major consequence in the big picture.  This is all just late December tradeflow volatility.  It's not glamorous to analyze or explain, but that doesn't make it any less of a culprit behind this wax-on/wax-off 2-week move.

2017-12-27 Close


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
102-21 : +0-10
Treasuries
10 YR
2.4125 : -0.0545
Pricing as of 12/27/17 5:43PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:26AM  :  Bonds Moderately Stronger Thanks to "Flatteners" (CHART)

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Lawrence Gale CPA  :  "Look at column AE for 30 years and column P for 15"
Lawrence Gale CPA  :  "Here is website to look up APOR. Comes out on Monday afternoons."
Lawrence Gale CPA  :  "For APOR in Encompass - Look under forms - Section 35 HPML. This will show you your APR and you can compare to APOR."
Matthew Graham  :  "lower demand in Direct bidding too. Primary dealers took much more than normal because they're the only ones forced to submit bids"
Matt Hodges  :  "do we make anything of lower demand by foreign buyers? quiet week, they enjoyed an extra holiday, its only a 5 year anyway?"
Matthew Graham  :  "RTRS - U.S. AWARDS INDIRECT BIDDERS SMALLEST SHARE OF U.S. 5-YEAR NOTE SUPPLY SINCE APRIL"
Matthew Graham  :  "Yeah, MH, average indirects have been in the mid-to-upper 60% range"
Matt Hodges  :  "indirects seem very small"
Matthew Graham  :  "RTRS - U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.36, NON-COMP BIDS $31.25 MLN"
Matthew Graham  :  "RTRS - U.S. SELLS $34 BLN 5-YEAR NOTES AT HIGH YIELD 2.245 PCT, AWARDS 2.99 PCT OF BIDS AT HIGH"