Yesterday saw bonds respond almost exclusively to Brexit-related headlines (read THIS RECAP for a synopsis of the day's events and Brexit's impact on the bond market in general).  If you're not into clicking links, here's the most relevant excerpt:

By refusing to render final approval by Thursday, Parliament is probably unable to get something on the EU's desk in enough time to avoid going past the October 31st deadline the EU had set for Brexit.  As such, an extension is likely and we're just waiting to find out how long it will be and if there are any interesting terms.  

The bottom line is that a DEAL Brexit (as opposed to a "no deal Brexit") remains a definite possibility.  That's the greater of two evils for the bond market and a big reason that rates are well off their recent lows.

And if you're into pictures more than words (and if you need any convincing as to the relative impact of Brexit at the moment), take a look at the following chart with British Pounds Sterling (GBP), German 10yr yields and US 10s.  It offers a good visual example of how developments that are specific to one country impact that country first and foremost, but also spill over regionally and globally.

20191023 open2

We'll continue to sort through Brexit headlines as the week continues.  The new extension deadline is still up in the air.  The EU could give the UK all the way until January to get things sorted out.  If that happens, the UK would likely not be required to wait that long to pull the trigger, as long as it gets through debate, analysis and voting over the Brexit bill that passed a procedural vote yesterday.

As for the US bond market reaction, the chances of a deal being rushed through Parliament looked almost certain to force US 10yr yields up and out of their longer-term consolidation range (yellow lines below).  General Brexit optimism can also largely be credited for the recent uptrend (white lines below).  It's hard to assign ifs and thens to every part of this process, but in general, the longer the extension granted to Brexit, the more leeway US bond markets would have to calm down.  

20191023 open

All that having been said, it's important to remember that Brexit is ultimately a sideshow that can add emphasis to existing trends and cause significant volatility inside relatively narrow ranges.  Bigger-picture shifts will still likely come down to economic data, Fed policy, and US/China trade deal progress.  On the data front, we're still waiting for the only important day of the week tomorrow.  Today's only potential flashpoint is the 5yr Treasury auction at 1pm ET, which could act as a barometer for traders' inclination to "buy the dip" after the recent drop in bond prices.


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 3.0
101-02 : +0-03
Treasuries
10 YR
1.7400 : -0.0260
Pricing as of 10/23/19 9:36AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Wednesday, Oct 23
7:00 MBA Purchase Index w/e 250.6
7:00 Mortgage Refinance Index w/e 2505.8
9:00 Monthly Home Price yy (%) Aug 5.0
13:00 5-Yr Note Auction (bl)* 41