Another Compelling Bounce. Is This Another Head Fake?
Much like Wednesday of last week, bonds managed to post a nice green candlestick on the daily chart today. Unlike last Wednesday, the motivation was more evident. Specifically, news that Russia was pulling out of 2 major Ukrainian cities prompted renewed ceasefire hopes. Oil prices and inflation expectations fell, with bond yields in tow. A subsequent retraction pushed oil prices back up, but not high enough to break the downtrend of the past 4 days. Bonds balked briefly but returned to the day's best levels by 2pm. So is it another head fake? Every big green day is an opportunity to establish additional support. Every big green day has to have lots of friends in the area before it should be taken too seriously.
Fed MBS Buying 10am, 11:30am, 1pm
FHFA Home Prices .........18.2 vs 17.7 prev (y/y)
Case Shiller Prices......... 19.1 vs 18.6 prev (y/y)
Consumer Confidence..... 107.2 vs 107 f'cast, 105.7 prev
Weaker overnight in fairly uneventful trading. Japan continued buying unlimited Japanese 10yrs, at the expense of buying demand for other assets (like US debt). Bonds bounced big on Ukraine ceasefire potential. 10yr down almost 10bps from highs and 4+bps on the day at 2.424. MBS up 5 ticks (.16) in 3.0 coupons and more than a quarter point in 3.5s, but liquidity is lacking (i.e. gains could be a bit bigger or smaller depending on how things shake out.
AM rally extended into the 10am hour with MBS up almost half a point at the best levels. 10yr yields were as low as 2.387 but have since bounced up to 2.44. MBS have given up most of their gains in 4.0 coupons and half the gains in 3.5s. Oil and inflation expectations are also bouncing.
Mid-day weakness finding support with MBS and Treasuries nearly back to the best levels of the day. 10yr is down almost 6bps at 2.409 and 4.0 UMBS are up 3/8ths of a point at 101-25 (101.78)