Does Precedent Matter For 2021 Taper Announcement?
Bonds rallied today, depending on when and where you look. Treasuries did better than MBS and were in stronger territory more reliably. MBS languished a bit in the afternoon--briefly dipping into negative territory. This prompted a few scattered reprices, but the average rate sheet was much stronger on the day. The big question heading into tomorrow's tapering announcement is the extent to which we should lean on 2013 as a precedent for how bonds may fare in the coming days. The notion that rates tend to move lower after the Fed announces an exit is fueling optimism in certain circles. Today's video has a history lesson on why 2014's bond rally wasn't exactly driven by Fed tapering.
Fed MBS Buying 10am & 1130am
Modestly stronger early in the overnight session, then cautiously sideways in Europe, despite EU bond gains. 10yr only 0.2 bps lower at 1.559 and UMBS 2.5 coupons up 2 ticks (.06) at 102-27 (102.84).
After a brief blip of selling at 8:30am, bonds have rallied slowly but steadily into the 11:30am hour. Treasuries are outperforming with 10yr yields down 2.4bps at 1.537. 2.5 UMBS are up nearly an eighth.
MBS-specific weakness since 1pm leaving prices in line with their lows of the day (currently unchanged). 10yr yields are down 1.6bps at 1.545%.