This week has been one of the most surprising selling sprees in bonds in the post-covid era. Just when you think we've surely seen enough selling to bring buyers in, it's right back to new long-term high yields and significantly lower MBS prices. That bounce is coming, to be sure, but it's a risky proposition to bet on it. Moreover, when it happens, it changes nothing about the broader trend toward higher yields that's been intact for more than 6 months. This week just happens to offer a more abrupt adjustment to the pace of that trend.
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Fed MBS Buying 10am, 1130am, 1pm
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Markit PMI Composite 58.8 vs 58.7 prev
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Existing Home Sales 6.69m vs 6.61m f'cast, 6.65m prev
Treasuries opened modestly stronger in Asia, but 10yr yields failed at 1.28% again. Steady-to-stronger data in Europe pushed yields higher heading into the domestic session. 10yr is up 1.4bps at 1.311% and 2.0 UMBS are down nearly an eighth.
After an underwhelming attempt at a friendly bounce after 9:30am, bonds are on the back foot again and MBS are quickly down to new lows (and 10yr up to new highs of 1.336+). There are no new market movers in play in terms of data or headlines (but big trades hit TSY futures at 10:08am and added to the weakness).
1.338 ceiling held up against multiple breakout attempts but finally gave way a short while ago. Yields are doing what yields do after a technical breakout (moving higher). Currently over 1.35%. MBS aren't happy about it. 2.0 coupons are down 3/8ths and the increasingly relevant 2.5 coupons are down almost a quarter point.
More minutes on the clock, more bond selling. Highest highs of the day shortly after the last update with 10yr hitting 1.36+. UMBS 2.0 coupons were as low as 101-16 (101.5) briefly. Both have bounced modestly since then, but the damage is done as far as rate sheets and reprice potential are concerned.
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