MBS Flip Script After Treasury Auction; Bonds Refuse to Chase Stocks
It was a fairly sloppy day of gains for the bond market with Treasuries noticeably lower in yield early and MBS underperforming. The script was flipped in the afternoon as a strong 2yr auction helped the market narrow down the value of shorter-dated bonds. MBS are shorter in duration than the 10yr, so it was no surprise to see outperformance as 2s handily outperformed 10s. From a technical standpoint, it was perhaps telling that 10yr yields refused to break the 1.71% pivot point despite stocks being down more than 4% (S&P). Frustratingly, bonds gave up some ground as stocks came surging back in the last hour of trade.
Fed MBS Buying 10am, 11:30am, 1pm
Markit Composite PMI ........50.8 vs 57.0 prev
Markit Services PMI ...........50.9 vs 57.6 prev
Markit Manufacturing PMI ...55.0 vs 57.7 prev
Flat during Asian hours, then stronger in response to a sharp rally in EU bonds. Weaker stocks helping bonds early. Treasuries outperforming, 10yr down 5.4bps. MBS up an eighth of a point.
Relatively extreme selling in equities with S&P futures down over 3%. Bonds not very receptive with Treasuries trading sideways all morning. Levels are in line with the last update, but MBS have ticked up a bit more (up .19 now in 3.0 coupons).
MBS outperforming noticeably since 1pm following a strong 2yr Treasury auction (and its implications for curve steepening). 3.0 coupons up more than a quarter point now while 10yr yields remain in line with previous levels.
Treasuries weakening slightly, apparently in response to a late day stock surge (even though they weren't willing to follow stocks lower earlier). MBS have been outperforming, still up a quarter of a point even though 10yr yields are now only up 1.5bps.