Big Rally Challenges Range Floor. What Next?
Bonds started strong in the overnight session thanks to an unchanged policy stance from the Bank of Japan. Weaker domestic data, led by Retail Sales, gave the rally a second wind in the morning hours. While some Fed speakers pushed back, others acknowledged the new "25bp hike" reality. 10yr yields were ultimately able to break and hold below the prevailing range boundary at 3.40-3.42. Today's video discusses the implications of that range breakout.
- Retail Sales
- -1.1 vs -0.8 f'cast, -1.0 prev
- (last month revised down from -0.6)
- Core PPI
- 5.5 vs 5.7 f'cast, 6.2 prev
- Retail Sales
Stronger overnight on BOJ announcement. Adding to gains after data. 10yr down 11.6 bps and MBS up 3/8ths.
Additional gains after Industrial Production data, but the rally ran its course as of 9:30am. 10yr still 13bps lower at 3.419 but up 4bps from lows. MBS still up more than a quarter point, but down nearly as much from the highs.
Bonds had already stopped losing ground shortly into the PM hours, but the stronger 20yr bond auction is helping reinforce the friendly bounce. 10yr down 15bps at 3.40. MBS up roughly half a point.
At the best levels in 10s, down 17bps at 3.379. MBS up roughly half a point depending on liquidity.
Choppy, illiquid mess of a day for MBS, but if we look through that noise, they're at or above the day's best levels (even if it doesn't always look like it). 5.0 coupons up more than half a point. 10yr yield down 18bps at 3.37.