Bonds rallied in a big way today with intraday lows of 2.885% in 10yr yields.  There was also a prominent sell-off in stocks, begging the conclusion that this was a classic "stock lever" move.  But that's not exactly right, and it's easy to see why. 

To be fair to stocks, they are still somewhat involved in the other series of events that precipitated this rally in bonds.  When they topped out on Monday morning, it was at levels just below the last major top (itself just below the previous top).  Taken together, it looks like stocks are having a very tough time bouncing back after the heavy losses of the past few months. 

Combine the stock hesitation with Fed speakers who are increasingly calling economic momentum into question and its enough for financial markets to start guarding against a shift by moving investment strategies away from risk.  One of the most obvious trades in the bond market has been "curve flattening."  Specifically, this means shorter and longer-term yields are moving closer together.  The most widely-followed portion of the curve is that  which lies between 2yr and 10yr Treasury yields (it's so widely-followed that the 2s/10s curve is synonymous with "the yield curve" according to most market watchers).

The curve matched record lows for this economic cycle on Friday and then broke to new lows yesterday.  After holding flat at those levels overnight, domestic traders punched-in for the day ready to keep the curve trades coming.  This is what drove the early gains in longer term bonds.  More than half the rally was intact by the time stocks began tanking around noon, but indeed, that did help bonds extend the gains to the day's best levels.  

Long story short, markets are worried the Fed is right in its assessment that economy may weaken in 2019 and that rates may not need to rise much more.  The warning shots for the shift in the economic cycle have been fired.  

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
100-29 : +0-03
10 YR
2.9150 : -0.0760
Pricing as of 12/4/18 5:52PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:34PM  :  Stock Lever + Technical Triggers = Big Bond Rally
10:07AM  :  Bonds Extend Rally Before and After Trade Headlines

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Peter Lassig II  :  "I on the other hand, discovered MBS Live years before I joined (via search too, I believe), but, thinking the annual fee was high, instead chose to spin my wheels and waste hours of my time researching the market (with sub-par and untimely information). Of all the things I pay for professionally, that's one expense that I gladly pay."
Adam Quinones  :  "how things have changed..."
Nathan Miller  :  "2008....still had hair back then"
Nathan Miller  :  "my float boat was taking on serious water & I was freaking out, scouring the web for live mbs info and any related guidance I could find, google presented MND and my boat was rescued. MG & AQ were like the coast guard saving my boat that was lost at sea. :o)"
John Tassios  :  "lower duration based on earlier refi risk when rates eventually drop"
Victor Burek  :  "rates wont keep rising..probably near a top"
Ted Rood  :  "weird, I'd have guessed duration would be longer in a rising rate environment."
Matthew Graham  :  "Gus brings up another good point. Duration on MBS is definitely not seen at 10 years right now, so the curve flattening also adds to underperformance (i.e. MBS is probably closer to a 5yr Treasury at the moment, and 5's aren't doing nearly as well as 10's)"
Gus Floropoulos  :  "Inversion"
Gus Floropoulos  :  "MBS lagging"
Matthew Graham  :  "Well, the Fed is also pretty much done buying. Spreads are wider between MBS and Treasuries. The volatility doesn't help, even though the volatility has resulted in lower rates in general."
Jeff Anderson  :  "Treasuries usually move first. MBS's will catch up....hopefully."
Joel Marks  :  "This may be nothing, but.... the last time the 10 year was at 2.90 (Sept. 5th, from what I can tell), FNMA 4.0s were at 101-20 compared to 100-31 today. Is there a reason why MBS' aren't at comparable levels?"
Timothy Baron  :  "Recession in 12-24 months, quite possibly."
Hugh W. Page  :  "We won't know for some time"
Jason Choi  :  "What does it mean now that 5yr yield is lower than 3 yr yield?"
Ted Rood  :  "Interesting to see bond gains today, with traders knowing markets are closed tomorrow and ADP and ISM data will hit."