Bonds Defy Logic, Rallying Nicely After Central Banks Tighten
There are only so many ways to explain what happened today and those explanations go so far in accounting for counter-intuitive movement. Specifically, bonds rallied despite 2 hawkish central bank announcements (which follow hard on the heels of yesterday's hawkish move from the Fed). This required stock market weakness and a shift in asset allocations as the last vestiges of 2021's normal liquidity levels dry up for the holidays. An abundance of short positions (and a subsequent short squeeze) played a strong supporting role.
Fed MBS Buying 10am, 11:30am, 1pm
Philly Fed Index 15.4 vs 30.0 f'cast, 39.0 prev
Jobless Claims 206 vs 200 f'cast, 188 prev
Housing Starts 1.679m vs 1.568m f'cast, 1.502m prev
Slightly stronger early in the overnight session. Gains erased after Bank of England rate hike. 10yr unchanged at 1.46+. MBS up almost an eighth.
Nice rally at 9:30am after modest strength in the previous hour. 10yr now down 2.5 bps at 1.433 and 2.5 UMBS up nearly a quarter of a point.
No new gains in Treasuries, but MBS continued higher into the 1pm hour. Leveling off since then with 2.5 coupons up more than a quarter of a point.