Increasingly Defensive Ahead of Jackson Hole
Bonds sold off moderately and steadily all day without any clear paper trail back to newswires, data, or events. Could it be an evolving narrative on covid? Typical hesitation on a Treasury auction week? Random movement inside a broadly narrow range? Or is this a simple move to the sidelines ahead of this Friday's Powell speech? While all of these factors could be in play to varying degrees, we know the bond market is a bit anxious to hear what Powell has to say. It's not that fireworks are guaranteed. Traders are simply preparing for volatility (for better or worse), and by moving up to the mid-point of the 2-week range, they're arguably in a better position for such things.
Fed MBS Buying 10am, 1130am, 1pm
Bonds weaker overnight in a risk-on trade led by Asian equities. Modest bounce back in Europe, but Treasuries still about 1bp weaker at 1.262%. MBS unchanged.
Losing some ground fairly steadily throughout the morning. Mostly an issue for Treasuries. 10yr now up 3bps at 1.283%. MBS down just under an eighth of a point.
Friendly bounce in bonds, but not big enough to derail the selling trend in Treasuries (close though). 10s hit 1.292% at the highs, and are down to 1.278%. MBS have recovered 2-3 ticks (6-9 bps) in price.
Friendly bounce over. Selling continues. New lows for MBS, down 19bps on the day now and new highs for 10s, up 4.2bps at 1.295%.