Undoubtedly, yesterday's bond trading sent a clear message that a technical ceiling near 2.88% was met with strong defense from traders who bought bonds and pushed yields back down into the recent range.  Color all of us shocked, then, that today saw yields promptly rise right back up to that ceiling!

Perhaps even more frustrating was the fact that it would take no small miracle to make solid sense of the move from a technical or fundamental standpoint.  Still, I will try...

One of the two explanations I offered for yesterday's strong buying was that it could have been due to traders cashing out short positions.  More simply put, traders who bet on rising rates in the short term (at the last bounce at the bottom of the range  last week) could have booked their profits and closed out short bets once the range ceiling got taken out without witnessing a glut of follow-through selling.  

Notably, that move coincided with new "flattener" trades (betting on 10yr and 2yr yields getting closer together) because the spread between 10s and 2s looked like it was hitting a ceiling at the time the rally began.  Today then, could be most easily explained as a "pain trade" for that flattener.  Yes, Trump's comments in favor of low rates could have served as a catalyst at first, but from there, it is best viewed as a sort of short squeeze (but instead of being short on bonds in general, the squeeze was on those who were short the yield curve--i.e. betting on flattening).

By the end of the day, 10yr yields were back above the unpleasant ceiling that it looked like they'd defended yesterday.  MBS, however, are still inside their recent range, having only lost 7/32nds in price to the 16/32nds decline in 10yr Treasury prices (4.8bp increase in yields).

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 4.0
101-26 : -0-07
10 YR
2.8950 : +0.0480
Pricing as of 7/20/18 6:44PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:24AM  :  ALERT ISSUED: Negative Reprice Risk Increasing
9:55AM  :  ALERT ISSUED: Trump Comments Adding Roundabout Pressure in Bonds

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "Shale boom, what?!"
Matthew Graham  :  "And again (again), look at a dollar index chart, long term, and remember that 2014 was all about the ECB (and for bonus mileage, consider that the resulting surge in the dollar was the true x-factor for the "mysterious" oil price declines)."
Matthew Graham  :  "Is this thing on? Again, the big dollar volatility has more to do with the Euro and uncertainty surrounding not only European economy, but also the fate of ECB QE. There's a BIG difference between Draghi and some of his potential replacements (i.e. Weidmann)."
Hugh W. Page  :  "Dollar Index is down less than 1% today and is still higher than it was a year ago. I'm not sure there is a cause for concern at the moment."
John Tassios  :  "that stability may be gone. USD dropping quite a bit today. I hope Powell / FED stick to their plan and ignore the noise. @2cents"
Michael Baker  :  "Well there's something to be said for the somewhat stable rates of the past couple months... it's nice to quote something to a pre-approval client and then actually have that rate a couple weeks later."
Hugh W. Page  :  "What takes us out of the persistent sideways grind we've been in for so long? Barring something drastic and unforeseen I think we just continue to grind away in this 50 bps range we've been in."
Dominick Cordone  :  "just setting up for the plummet"
Oliver Orlicki  :  "....again"
Oliver Orlicki  :  "ugh 2.88"