Defensive Shift Ahead of ECB Announcement
Coming into the week, there was some speculation that Monday's bond rally was based on expectations for a friendly announcement from the European Central Bank (ECB) on Thursday morning, but it probably makes more sense to ascribe the move to other variables (new covid concerns, trading positions, momentum/technicals). That also makes it possible to view today's weakness as some sort of "pre-ECB positioning," but that's also probably not ideal. In other words, we have a defensive shift ahead of the ECB announcement, but not necessarily because of it.
Fed MBS Buying 10am, 1130am, 1pm
Slightly weaker overnight with some push back between 5am and 9am. Sellers seized those higher prices and are now pushing bonds to the weakest levels of the day/week. 10yr up 5+ bps at 1.273 and 2.0 UMBS down 6 ticks (.19).
Weakness peaked just after the 1pm 20yr bond auction and we've seen some semblance of stability since then. 10yr is up 6.6bps at 1.29% and 2.0 UMBS are down a quarter of a point at 101-18 (101.56).
Trading has been flat since 11am at this point with hindsight suggesting no real reaction to the 20yr auction. MBS have underperformed vs Treasuries since then, but only after outperforming significantly since Monday afternoon. 2.0 coupons are down nearly 3/8ths of a point at their lows of the day: 101-15 (101.47). 10yr yields are up 7.3 bps at 1.293.