First thing’s first. Let’s make a quick distinction between bond market components. When we talk about “incredible momentum,” it has nothing to do with how MBS are performing compared to Treasuries, because frankly, they suck in that regard. We would expect MBS to suck in the current environment, for that very reason: Treasuries (and anything else that’s a risk-free economically stable sovereign with low inflation) have had incredible momentum.
Still, that momentum translates to MBS making gains (even though they’re not as big as Treasury gains). And gains are gains. Personally, I don’t really care what Treasuries are doing if rates are low. Do you? In fact, any underperformance now is just potential outperformance in the future when rates stabilize or bounce higher.
A bit of an over-explanation there, but from a strict MBS point of view, it’s not appropriate to say “incredible momentum.”
With respect to the incredible momentum in Treasuries, yesterday was a good defensive day. After a quick visit to 1.712, there were several bounces just under the long-term 1.70 pivot. Big days with big volumes bounced on 1.70 as a floor in the past (it acted as a “reaction low” for Bollinger Bands in mid January) and now it’s holding up as a ceiling as of Friday’s domestic session. Other technical studies have taken a positive turn as well.
Long story short, it looked like things might have been getting bad, but they got good again, and without much drama. The positive momentum is pervasive until it’s not pervasive any more, and even if Treasuries are outperforming MBS, gains are gains.
Today’s data calendar is light, with only Factory Orders as a 2nd-shelf-or-higher report. It’s not usually a market mover and probably won’t be today either.