Debt Ceiling Debate Volatility Causing Issues For Bonds

Treasuries sold off in a linear fashion today--much more aggressively than MBS.  The debt ceiling debate is the most logical scapegoat considering the direct implications for the US government's borrowing capacity.  It's not that the bond market doesn't already know that the debate will be resolved before default, but it does provide a series of tradeable headlines allowing traders to capitalize on the volatility inside the broader range.  The trade of the day has been to push yields higher in anticipation of a deal.  We also shouldn't rule out the massive rallies seen in short-term bills.  These were initially sold en masse with traders parking the money farther out the curve.  With an end in sight, it's not unreasonable to expect those trades to be unwound.

Econ Data / Events
    • Jobless Claims
      • 229k vs 245k f'cast, 225k prev
    • Q1 GDP Prelim
      • 1.3 vs 2.9 f'cast, 1.1 prev
Market Movement Recap
08:54 AM

Bonds had been unchanged after the AM econ data, but are losing ground on the prospect for a near-term debt ceiling deal. 10yr yields are now up 4.6bps at 3.79 and MBS are down just over a quarter point.

01:37 PM

Steady weakness all day in Treasuries with 10yr up 5bps at 3.794.  MBS down only an eighth--outperforming. 

03:08 PM

snowball selling in Treasuries with 10yr up 8bps at 3.82+.  MBS are down less than 3/8ths, but at their lows of the day.

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