A fairly flat morning gave way to an afternoon rally, especially for MBS. 10yr yields made "lower highs" for the 3rd day in a row today. Getting "hopeful" has been dangerous for a month now. While we don't know how dangerous it will prove to be this time, it's clearly less dangerous than it was last week. In other words, this is our best day of evidence so far that the recent bond sell-off has run its course for now.
Fed MBS Buying 10am, 1130am, 1pm
Slightly stronger overnight, at first. European hours brought a bit of weakness, ushering 10yr yields into the domestic session about 2bps higher than yesterday's close. Currently up only 1bp at 1.434%. 2.5 UMBS are down slightly less than an eighth.
A late day rally in European bonds is spilling over into US trading. British Gilts and German Bunds are both outpacing Treasury gains and leading Treasuries to lower yields. 10s are now down almost 1bp on the day at 1.417. UMBS 2.5 coupons are only a few ticks below 'unchanged.'
Additional gains just before the noon hour, with Europe still leading the way. Based on scores of similar examples, we're at risk of running out of steam when Europe clocks out for the day (which happens at noon ET, for the most part... i.e. 30 minutes ago). MBS and Treasuries are both modestly stronger on the day now, and both are showing early signs of exhaustion. Stay tuned.
Unified message on inflation from Fed speakers. Daly says runaway inflation isn't imminent and it would take "some time" to get it sustainably back to 2%. Brainerd stressed the importance of getting it above target "for some time" and that Fed has the tools to ensure no long-term shift above 2%. She also mentioned that bond volatility caught her eye last week. No major changes in trading levels with bonds holding modest gains.