Wednesday's reaction to the Fed was essentially a non-reaction with yields ending the day very close to pre-Fed levels.  Traders were more willing to make stronger bets in the overnight session and that momentum is gathering steam at the start of the domestic session.  10yr yields quickly find themselves knocking on the 1.37% ceiling despite a lack of new inspiration.  This is the 'unseen hand' at its finest (bigger picture, strategic trading motivations as the deepest pockets reposition for the road ahead).  If you simply must have a scapegoat, the 30k-ish drop in case counts (Wed vs Wed) is a great place to start.

The typical 10yr yield candlestick chart runs the risk of endorsing complacency at the moment because the consolidation pattern hasn't yet been officially broken.

20210923 open4.png

While the chart above shows an in-range correction for the 2-month old consolidation in Treasury yields, the chart below shows a decisive breakout in UMBS 2.0 prices starting last week.

20210923 open3.png

Was the MBS market giving us an early warning about the Fed?  No.  The MBS market reflects the undercurrents in the yield curve whereby Treasuries of 5yrs and under are rising at faster paces.  The yield curve drama is expressed 2 different ways in the charts below.  The first shows relative movement by overlaying 3 other Treasury yields on a 10yr chart.

20210923 open.png

The second is in absolute terms (i.e. all of the following lines show the actual movement in yields since 1/1/21)

20210923 open2.png

Bottom line, the longer the bond, the better it's doing.  5yr yields are under pressure in a perfect storm sort of way (short enough to be hurt for short-end reasons, but not long enough to benefit for the reasons that 30yr bonds are benefitting).


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
100-24 : -0-08
Treasuries
10 YR
1.3600 : +0.0290
Pricing as of 9/23/21 10:03AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Thursday, Sep 23
8:30 Jobless Claims (k) w/e 320 332
9:45 Markit Services PMI * Sep 55.0 55.1
9:45 Markit Manuf. PMI * Sep 61.5 61.1
9:45 Markit Composite PMI * Sep 58.3 55.4
10:00 Leading index chg mm (%) Aug 0.7 0.9