Gigantic bond rallies resulting in all-time rate lows have some side effects.  One of them is that we subsequently find ourselves wondering if each reasonably big sell-off is the beginning of the end of the super low rates.  On any other day, a 5.3bp increase in 10yr Treasury yields would be inconvenient, but not downright troubling.  Today, however, it starts the clock ticking on a mystery that will only be solved by several more days of trading activity.

A similar clock started on Monday afternoon.  Earlier that day, yields and mortgage rates hit more new all-time lows, but began giving back gains in the afternoon.  We asked the same question (about good times being over) then, but concluded "probably not"--at least not based on anything that happened on that particular day.  

Today's version was modestly more compelling.  There are a few reasons for this, not the least of which being the sense that yesterday's Fed rate cut over-reaction may have served to bring the bond market to critical mass earlier than expected in this little coronavirus panic saga.  Other reasons include the more pervasive selling throughout the day and the resilience in equities (now a broad-based move that arguably began on Feb 28th).  

The key question remains: has the market fully priced-in the guaranteed fallout from the ongoing spread of coronavirus?  As I've said time and again in the past 2 weeks, bonds have been priced for more drama and more economic weakness than we've yet seen, and are susceptible to a bounce when the root causes for that weakness show signs of abating.  In other words, the economic data in coming months doesn't matter nearly as much as simply realization that global commerce is getting back on track after the coronavirus pause.  We already know data and sales will be impacted.  As soon as those anticipated impacts are more frequently downgraded than upgraded, bonds will be under even more serious pressure.

There's no user manual for determining when that will be based on some specific news or data.  As such, the market itself will tell us when it's ready, although little factoids like the progress against coronavirus in Wuhan mentioned yesterday (i.e. emergency hospital closing as more people recover) can serve as early indicators.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
UMBS 2.5
102-05 : -0-11
10 YR
1.0360 : +0.0440
Pricing as of 3/4/20 7:07PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:41PM  :  ALERT ISSUED: Negative Reprices Becoming Likely
3:27PM  :  ALERT ISSUED: Negative Reprice Risk Increasing as Bonds Break Support
12:37PM  :  ALERT ISSUED: Bonds Losing Some Ground. Reprice Risk is Relative
9:35AM  :  Impressive Ground-Holding Overnight; Data Doesn't Matter

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, Mar 04
7:00 MBA Purchase Index w/e 265.8 273.1
7:00 Mortgage Refinance Index w/e 3594.4 2852.9
8:15 ADP National Employment (k)* Feb 183 170 291
10:00 ISM N-Mfg PMI * Feb 57.3 54.9 55.5
10:00 ISM N-Mfg Bus Act * Feb 57.8 58.8 60.9
Thursday, Mar 05
8:30 Jobless Claims (k) w/e 215 219
8:30 Continued jobless claims (ml) w/e 1.733 1.724
10:00 Factory orders mm (%) Jan -0.1 1.8