Friday's Sell-Off Makes Rest Of The Week Look Like a Trap
Over the past 2 days, we've pondered the fate of this week's sideways-to-slightly-stronger trend in the bond market. Would it be the start of a correction that took yields even lower or merely a consolidation that allowed bonds to catch their breath before more selling? With today's weakness in hindsight, "consolidation" seems like too gentle of a word. "Trap" is a better fit--the kind of trap that only a giant talking squid alien can warn you about.
Fed MBS Buying 10am, 11:30am, 1pm
Retail Sales..................... -1.9 vs 0.0 f'cast, 0.2 prev
Industrial Production.......-0.1 vs +0.3 f'cast, 0.7 prev
Consumer Sentiment ......68.8 vs 70.0 f'cast, 70.6 prev
Consumer 1yr inflation.....4.9 vs 4.8 prev
Consumer 5yr inflation.....3.1 vs 2.9 prev
Weaker overnight with some mention of "5 hikes in 2022" from Fed's Waller, but buyers are pushing back in early domestic trading. 10yr up roughly 2bps and MBS down an eighth of a point.
Some relatively abrupt weakness for MBS with 2.5 coupons down a quick 7 ticks (.22) and 3.0 coupons down 6 ticks (.19) from intraday highs. 10yr up 4bps at 1.742. Technical rejection of 1.70%
Additional weakness heading into PM hours. Yields at highest levels with 10yr up 6.2bps at 1.763. MBS in line with lows (3.0 coupons) or at new lows (2.5 coupons).
Weakest levels of the day. 10yr up 7.4 bps at .775 and MBS down 3/8ths in 3.0 coupons. No new motivations. Just the slow burn.