The only fashionable topic of conversation in financial markets at the moment is the global flight-to-safety. There are various root causes for this, depending on who you ask, but China is frequently mentioned along with “emerging market currencies.” History has shown a propensity for the panic over such factors to overshadow the ultimate effects on markets, but there is a move into a defensive position nonetheless.
In this case, that has meant heavy selling in equities markets and big benefits for safe-haven assets such as the Yen and US Treasuries. The move has been abrupt and precipitous (case in point the SP was flat near all-time highs on Tuesday, so all of the drama has been a 2 day affair so far).
The new resistance level to watch in 10yr yields is all the way down to 2.706 now. That’s where 10’s bounced overnight before retracing to 2.761 at the start of the domestic session.
The rally turned back on after that (coinciding with a bounce in the Yen, equities, etc) and 10’s made it down just under 2.72, but didn’t approach the overnight lows again. MBS have done their best to keep pace, but the 8 tick gain in Fannie 4.0s vs the 12 tick gain in Treasuries is fairly emblematic of the underperformance. Rate sheets haven’t gotten nearly as much love as Treasuries.