There were already roughly 400k 10yr Treasury futures contracts traded by 8am today.  A typical overnight session runs in the 100-300k range.  Volume has been ballooning over the past 3 trading sessions.  Month-end trading is only a small part of that.  The bigger source of motivation has been a series of "momentum chases" following an exceptionally quiet summertime trading environment.  

Some of these pops in momentum happened when yields made a technical break toward higher levels.  Others happened when traders shifted positions at the very end or very beginning of a new month.  In fact, 4 out of the 5 noticeable upticks in volume occurred on the last trading day of the month looking back to July (so EVERY month).  They've also coincide with reversals in momentum that have lasted the entire month.

20201102 open.png

Does that mean we're destined to rally in November?  It could!  But it's definitely not a guarantee.  Here's what we DO know:

Things are off to a good start.  Despite stocks being 1% higher, 10yr yields are already down 3bps.  This follows a month-end Friday that saw money rush out of both sides of the market.  Perhaps it's coming back in now?

As far as individual weeks of scheduled events go, this one packs in the most concentrated dose of potential market movers imaginable.  Truly, it's a rare confluence of events with the presidential election on Tuesday, a Fed announcement on Thursday, and NFP, the ironic laggard on Friday.  There are other relevant economic reports as well, including ISM Manufacturing today and ISM services on Wednesday.  But the election (including the battle for control of the senate) will be the biggest deal.

To reiterate a point I made frequently in the past few weeks, it's all well and good for various economists, pundits and investment strategists to offer their 2 cents on what they think will happen based on any given election result.  But they did the same thing in 2016 and a majority of them were wrong.  I'm sure the market reaction will be very easy to explain with the benefit of hindsight and very hard to predict without it.

If anything serves to limit the potential for the bond market to go crazy with losses or gains, it's the fact that the pandemic is ongoing and unable to be "solved" quickly.  That's not to say it will prevent what would otherwise be extremely large moves in the bond market, but it should serve to make them smaller than they otherwise would be.  In other words, bonds would have a nearly impossible time justifying losses such as those seen in 2016.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
UMBS 2.0
103-09 : +0-05
Treasuries
10 YR
0.8451 : -0.0139
Pricing as of 11/2/20 9:10AMEST