Big Bond Rally Just Got Bigger
U.S. traders fired up the screens this morning to see a substantial bond rally and stock sell-off that happened almost exclusively during European hours. Rather than push back against the move, the domestic session took things a step farther. The motivations can be viewed as a complex mix of a pain trade for "risk-on" trading positions, technical levels, summertime seasonals, and the simple notion that it's too soon for the Fed to decide on tapering, but at the core is the fact that covid case counts are rising at their fastest pace since January. The pace of the stock sell-off added an additional source of motivation for bonds.
Fed MBS Buying 10am, 1130am, 1pm
Sharply stronger overnight with most of the gains happening in the European session. General "risk-off" trade. S&P futures down 1.2%. 10yr yields down 7.6bps at 1.222%, lowest since early Feb. 2.0 UMBS up nearly 3/8ths of a point.
Gains extended after the 9:30am NYSE open, ultimately flushing 10yr yields 12bps lower to 1.176%. We've bounced since then, now back up to 1.21%. UMBS 2.0 coupons are about an eighth of a point off their highs, but still 14 ticks (.44) higher on the day
Previous weakness was successfully fought off in the noon hour and bonds have been mostly stronger since then. 10yr down 12.3bps at 1.177 and 2.0 UMBS up more than half a point.