Annoying Little Head-Fake, But Don't Abandon All Hope
Just when the bond market looks like it will throw you a bone, yields reverse course and tap the ceiling at new multi-year highs as they erase all of the day's gains. The turning point was clearly the 9:30am NYSE open and without any overt headline or correlated drama in other markets, we're left to assume that pre-market short covering gave way to "re-shorting" as traders got back in their preferred seats ahead of tomorrow's Fed announcement. In that context, the AM gains amounted to an annoying little head-fake that convinced rate watchers that recently troublesome trends might be changing. As we discuss in today's video, the AM gains were never really that big in the bigger picture as well as the justification for holding out hope, in general.
Fed MBS Buying 10am, 11:30am, 1pm
Core PPI y/y 8.4 vs 8.7 f'cast, 8.5 prev
NY Fed Manufacturing -11.8 vs +7.0 f'cast, 3.10 prev
Yields initially popped higher overnight, then recovered a bit. Good correlation with EU bonds. 10yr down 4bps at 2.103 and 3.5 UMBS up 5 ticks (.16) at 101-06 (101.19).
Gains topped out and look to be turning a corner now. MBS still up .09-.19 depending on the coupon and 10yr still down 2.3bps, but well off the previous lows (2.121 now vs 2.079 earlier).