Today’s activity in bond markets leaves rates perfectly flat, on average, during the month of November. In other words, on a chart of 10yr yields, if you drew a straight line back to the first minute of November with an equal number of minutes above and below the line, it would be perfectly flat.
While that’s a positive development in the bigger picture (considering the 2nd half of October had clearly been a negative trend), it’s meant a fairly serious pull-back from overnight strength. 10yr yields were as low as 2.319 by the first hour of domestic trading and are now back up to 2.353. Fannie 3.5 MBS were trading around 103-09 at the open and are now down to 103-03. While both are still technically in positive territory vs Monday’s latest levels, the mid-morning trend is decidedly negative.
We can only hope that we’re seeing overly-cautious preparations for the 1pm Treasury auction (10yr Notes), though the negativity increased when European markets closed. That suggests domestic bond markets had been benefiting from European bond market strength. Without overcomplicating things, we can simply say that there was less risk tolerance (good for bonds, bad for stocks) when Europe was still in session. It increased when the US session began, and is increasing further now that Europe is closed (good for stocks, bad for bonds).