Nice Recovery as Month-End Trades Roll In
Month-end trading isn't always helpful for bonds. Indeed, that's why our knowledge base entry on the topic is titled "month-end positioning." There was plenty of positioning and repositioning today as traders initially jumped on the bandwagon of a flatter yield curve and then began to exit those trades after 10:30am ET. The flattener exit trades proved helpful for MBS with 2.5 coupons able to recover more than 3/8ths of a point, trough to peak. 10yr yields were down just over 2bps by the 3pm CME close.
Fed MBS Buying 10am & 1130am
Core PCE Inflation 3.6 vs 3.7 f'cast, 3.6 prev
No initial reaction to PCE data despite overnight weakness. Now seeing risk parity trades pulling money out of both sides of the market. 10yr up 4bps at 1.617 and MBS down more than a quarter point.
No additional weakness in MBS, but they're lagging the recovery in 10yr Treasuries (which are now down to domestic session lows, up 1.5bps on the day at 1.593). 2.5 MBS are still down nearly a quarter point. Reasons for the underperformance discussed HERE.
Better recovery for MBS, now down less than an eighth on the day. 10yr yields are in the green, down .7bps at 1.571.
Bounce back continues with MBS up an eighth of a point at 102-22 (102.69) and 10yr yields down 1.4bps at 1.564