Bond Rally or a Token Bounce After Last Week's Rout?
Last week saw rates rise at the fastest pace in months in an apparent lift-off from an extended stint near all-time lows. Now the current week looks vastly different with bonds set to improve significantly for a 2nd straight day. Is it already time to talk about last week's highest yields being the ceiling for now?
11:30-11:50 AM (ET) - Fed 30yr UMBS Buying
Much stronger overnight with Treasuries gaining in Asia despite no help from stocks and improving again in Europe, this time with a significant stock sell-off providing a boost. Both stock prices and bond yields bounced just before 5am ET and have been heading higher since then.
Gains continued through 10am, but it looks like they've leveled off for now. 10yr yields made it as low as .802 but are now back up to .822% (still almost 6bps lower on the day). 2.0 MBS are still nearly 3/8ths higher on the day.
Lackluster 10yr auction prompted some selling in Treasuries and MBS with the latter losing an eighth of a point in choppy, illiquid trading. Not necessarily a reprice risk situation just yet, but if bonds embark on a negative trend of the rest of the afternoon, that could change.
Post-auction weakness has been mostly manageable for the bond market. There is very little liquidity in MBS (buyers and sellers are far apart in terms of desired selling/buying prices). This is mostly a factor of buyers going on strike (relatively) after the 10yr auction. Sellers finally caved, but prices are no lower than they were in the immediate wake of the auction. 10yr yields are also about 1bp better than their initial post-auction highs.