Even the confirmation of a 4%+ GDP and the strongest read on Pending Home Sales in 11 months were not enough to wrest control of bond market momentum from Europe. Particularly, market participants widely expect the European Central Bank (ECB) to announce some form of quantitative easing (QE) by March 2015. The ECB has not been shy about telegraphing that likelihood and markets have not been shy about pricing it in. It’s dominated bond market momentum since early April and continues to make domestic economic data look irrelevant for Treasuries and MBS.
After all, ALL THREE of this morning’s economic reports were stronger than expected, yet MBS are up 5 ticks and 10yr yields are down 2.5bps. Both are at the best levels in weeks and near their best levels in over a year. Bottom line, we simply have yet another day where a majority of the movement has taken place by the open followed by relative stability during domestic hours. If we do see some volatility today, it will most likely be after the 1pm Treasury auction (last of the week), and the European bond market close.