MBS Day Ahead: Any Underlying Imbalances Will Surface Today


Most likely, today will just be another day in the range-bound grind for bond markets leading up to tomorrow’s Jackson Hole speech from Yellen.  Although this particular instance of sideways movement is much more extreme than most past examples, it still fits the same mold of markets consolidating ahead of an ostensibly major event.

In the past, we’ve seen similar consolidations that have been broken early.  In other words, it will appear that bonds are trading in a narrow range because they’re waiting to see how such and such major event turns out.  Then bonds will break either higher or lower a day or two before the actual event, and without anything by way of overt motivation.  If something like that is going to happen with this week’s much-anticipated Jackson Hole festivities, today is the last chance.

In the data department, we have only Jobless Claims and Durable Goods with the latter being the only potential market mover (it just came out at +4.4 vs +3.3, with the important “capex” component +1.6 vs +0.3 forecast, which is putting upward pressure on yields initially).  The afternoon sees the completion of the Treasury auction cycle with 7yr Notes at 1pm.  The auction itself typically isn’t a big market mover, but in a light volume, summertime afternoon, the simple passing of the week’s debt supply can create changes in the supply/demand picture that move markets.

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