MBS Outperform, But Bonds Fail To Confirm The Bounce
Tuesday's gains increased odds that a friendly bounce was in the works, but overnight and AM weakness put an end to the optimism. Frustratingly, there weren't any great scapegoats. Data was weaker and none of the potential headline motivations were compelling. If there's some small solace, it's that MBS outperformed rather noticeably, but that really does nothing to alter the broader bond market trend (namely: consolidation in a wide sideways range at the highest yields in a year).
Fed MBS Buying 10am, 1130am, 1pm
ADP Employment 117k vs 177k f'cast, 195k prev.
ISM Services PMI 55.3 vs 58.7 f'cast
'Prices Paid' highest since 2008
Bonds were initially mostly flat during Asian market hours before selling off during European hours. Econ data and corporate issuance contributed to the move. Early domestic trading brought a bit more weakness as traders pull out of both stocks and bonds simultaneously (risk-parity trading). 10yr is up 6+ bps at 1.464 and UMBS 2.5 coupons are down just over an eighth of a point.
sharper weakness after 9:30am NYSE open, both for stocks and bonds. 10yr up almost 8 bps to 1.47+. MBS down a quarter point. Weaker ISM Services headline not helping much.
Stability for now with yields topping out just before 11am and sideways to slightly stronger since then. MBS just ticked up more noticeably, which we can safely conclude is due to the Fed's 1-120pm ET MBS buying operation. That's not to take away from the positive vibes, mind you. Simply to account for the past few minutes of MBS outperformance.
Treasuries still mostly holding flat with 10yr yields up 7bps. MBS still outperforming, but off the very best levels seen just after 2pm. UMBS 2.5 coupons are down roughly an eighth on the day.