Measures of bond market volatility spiked this morning WELL before the 8:30am GDP reading.  Of course a +5.0 GDP vs a 4.3% forecast will get all kinds of credit for dragging bond yields higher, but to watch markets trade it out, that really wasn't the case.  In fact, it's quite plain to see the massive spike in implied volatility on the chart below (highlighted in red). 

2014-12-23 volatility

Was it equities markets then?  Did the 'stock lever' pull bond yields surprisingly higher today?  While stocks did move higher (and lower, and higher again) today, there was no clear correlation with bond market movements.  Zooming out the chart just enough to see how correlated things HAD been recently, we can see just how far from a consideration today's relatively modest stock movements ended up being compared to the much bigger move in bonds.

2014-12-23 lever

This was definitely a bond-market-specific move and it definitely was as big as it was because of a lack of liquidity.  To revisit the point made this morning: the few folks there are trading something, the more exaggerated the price movement will be when there's an imbalance.  And there was an imbalance today.  It began innocently enough, but really took on a life of its own after the very poor 5-yr auction.  It's a safe bet that at least some of today's weakness was traded with an eye on tomorrow's challenging 7-yr auction. 

The biggest bottom line though, is that there just aren't as many people left actively participating in bond markets at this time of year.  Sometimes the folks who remain can avoid setting off any technical or algorithmic landmines, but if they don't, day's like today happens.  Technical levels are crossed, prompting more selling.  That, in turn sets-off algorithmic selling triggers, continuing the snowball cycle.  The only saving grace here is that past examples of similar holiday breakdowns tend to see a bounce back in the other direction, as was the case in 2011.  That doesn't mean you should float and expect things to improve, but it affords us some hope for moderation at least.

2014-12-23 tsy

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
100-16 : -0-22
FNMA 3.5
103-22 : -0-17
FNMA 4.0
106-11 : -0-09
2 YR
0.7470 : +0.0840
10 YR
2.2660 : +0.1090
30 YR
2.8530 : +0.1120
Pricing as of 12/23/14 4:55PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:17PM  :  ALERT ISSUED: If you Haven't Seen a Reprice Yet, You Probably Will
1:08PM  :  ALERT ISSUED: Weaker After 5yr Auction; Reprice Risk Increases
11:15AM  :  ALERT ISSUED: Negative Reprice Risk Increasing as Technical Support Breaks
9:23AM  :  Bond Markets Minimally phased Phased by GDP; Separate Negative Momentum Follows

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "One of the plays in bond markets' Nov/Dec playbook. Similarly-sized moves as well (2.0 to 2.25 now vs 1.8 to 2.05 then). View Image"
Matthew Graham  :  "we go through these days and weeks hoping not to be pushed too far in either direction, but if it happens, this is the result. Historically, it tends to bounce back probably 60-70% of the time, but the times it doesn't, well... you wish you'd taken it more seriously."
Matthew Graham  :  "there's not necessarily a positive or negative bias associated with holiday volume, simply a more slippery slope in either direction."
Tammy Meng  :  "or should we lock guys"
Tammy Meng  :  "Is this just normal holiday worsening"
Matthew Graham  :  "assuming the lender in question has recently repriced"
Nathan Miller  :  "might as well wait to see what monday brings at this point..."
Steven Koerner  :  "Locking or floating with a loan closing in 2 weeks?"
Matthew Graham  :  "D+ "
Matthew Graham  :  "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.39, NON-COMP BIDS $36.62 MLN"