The recent trading range has been reinforced after a strong show of support in this week's Treasury auctions.  Treasuries were under more pressure heading into that process and are breathing a bigger sigh of relief coming out of it.  In visual terms, this can be seen as a ceiling bounce around .735 and now in a break below the recent uptrend in yields.

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MBS are not unhappy, however, and neither are rate sheets.  It's reassuring to see MBS spreads continue to operate in this narrow range even as the Fed has reduced its daily buying to $5bln (blue line is the gap between MBS yield and 10yr Treasury yield).

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MBS spreads don't even tell the whole story due to the balance between 2.5 and 2.0 coupons in terms of new loan production.  The calculation that feeds the blue line above has to give 2.5 coupons more weight, but 2.0 coupon pricing is doing more to inform the lower rate range.  2.0s are definitely outperforming 2.5s.

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There are no significant market movers on the calendar today.  Bonds will see how they feel about holding solid overnight gains.  At least some of the strength is dependent on weakness in equities.  As such, it's no surprise to see stocks moving deeper into the lowest levels of the week.  If they manage to bounce before taking out the lows from early May, bonds stand a good chance to bounce as well.