Is it Time To Get Excited About a Bounce?
As per the recent norm, bonds were fairly flat overnight and began selling off in domestic trading. The losses were fairly minimal, but MBS underperformance was annoying. Traders were tuned in to Powell's congressional testimony, waiting to see if he would add any fuel to last week's fires. Instead, Powell did a good job of adding any new urgency to the Fed's balance sheet run-off timeline. In specifying 2-4 meetings for a decision, Powell's thinking seems consistent with our time frame prediction of June-Sep. This was worth a moderate reversal for nervous bond traders. 10yr yields made it 1-2bps into positive territory and MBS had an even nicer reversal with 3.0 coupons up more than an eighth of a point in the PM hours.
Fed MBS Buying 10am, 11:30am, 1pm
Initially flat in the overnight session, but weaker in domestic hours. Modest losses for now with stock market weakness helping bonds find their footing. 10yr up 1.2bps. 3.0 UMBS down 6 ticks (.19).
Bonds stabilizing during Powell testimony. 10yr only .4bps higher on the day at 1.759 and 3.0 UMBS down only an eighth of a point at 102-17 (102.53).
Well into positive territory as the post-Powell rally continued. 3.0 UMBS up nearly a quarter point and 10yr yields down 1.1bps at 1.744.