Both stock prices and bond yields moved sharply lower today for a combination of reasons.  Trade tensions are ongoing, with visible effects being increasingly noted.  British politics are also weighing on markets with Theresa May likely leaving office within the week.  Most obviously today, the Markit manufacturing and non-manufacturing PMIs suggested economic contraction (or major deceleration, depending on the internal component in question).  This coincided with heavy losses as the start of the NYSE session in stock to create a flood of safe-haven demand in the bond market.

Bonds had their own structural motivation as well.  This refers to the "structure" of the bond market in terms of the balance of trading positions with various stop-loss levels and duration preferences.  In general, bond traders were far more likely to be in short positions heading into the week based on the fact that most technical indicators made a clear case for a bounce toward higher rates that began on Thursday last week.

When short positions are stacked up like that, they're vulnerable to being forced into a short squeeze.  This snowball of short-covering wasn't the key reason for the size of today's bond market gains, but it definitely helped make the move bigger than it otherwise would have been.

On a final note, we have to consider the fact that liquidity is relatively lower heading into a 3.5 day weekend.  As I warned at the end of last week, the end of the current week could increasingly see idiosyncratic trading.  At least part of the volatility could be chalked up to that as well.  Due to the timing of the econ data cycle, we won't have a great idea about how the full roster of traders will react to the current environment until the first week of June. 


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
101-14 : +0-07
Treasuries
10 YR
2.3220 : -0.0710
Pricing as of 5/23/19 5:47PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:28PM  :  Positive Reprices Inbound as Risk-Off Rally Gets Serious
9:54AM  :  Markit Manufacturing/Services PMIs Helping Bonds

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "Just spoke to the past few questions in the Huddle. For those of you just joining us today, make sure you subscribe to the huddle so you'll get it in your email going forward."
Matthew Graham  :  "
New MBS Huddle Released
What The Heck is Going on Today and Should You Lock or Float?"
Gilbert Denizard  :  "Matt, with tomorrow being a half day, should we fear a big swing on light volume?"
Richard Peters  :  "would you lock in now if lender hasn't repriced yet this afternoon?"
Matthew Graham  :  "Theresa May going down, Britain going populist + Markit PMI tanking + the "obvious" trade being to stack up short positions last week after trade war news cycle died down = risk-off snowball in stocks and bonds where 9bps in 10yr yields and half a point in MBS is a baseline and not at all a remarkable turn of events. Realistically though, it was the Markit data more than anything, and the fear that it spells trouble ahead for econ data after Memorial Day."
Edgar 2.06%  :  "Looking forward to today's MBS recap!"
Timothy Baron  :  "Still rallying. I'm not locking yet."
Nathan Miller  :  "? pretty much zero risk waiting at least till end of day"
Kunal Khanna  :  "I think locking now would be a good decision..."

Economic Calendar
Time Event Period Actual Forecast Prior
Thursday, May 23
8:30 Jobless Claims (k) w/e 211 215 212
8:30 Continued jobless claims (ml) w/e 1.676 1.670 1.660
10:00 New home sales chg mm (%)* Apr -6.9 -2.8 4.5
10:00 New home sales-units mm (ml)* Apr 0.673 0.675 0.692
Friday, May 24
8:30 Durable goods (%)* Apr -2.0 2.6