We’re going to need to re-think the TGIF abbreviation…
HWGAF: “Here we go again Friday…”
OCNAF: “Oh crap, not another Friday….”
JGMOTCTCF: “Jane, get me off this crazy thing… called Friday.”
And so on and so on….Long story short, we’re back at the worst levels for bond markets since last Friday. Treasuries were acceptably weaker to start the overnight session, largely on the back of aggressive stimulus in Japan where $117 bln in new stimulus was approved.
Bond markets recovered into the domestic open with 10yr yields chopping heir way back down to 1.88. Volume was fairly big for the overnight session, huge for yesterday and given that there’s no major economic releases, the second hour of the domestic session has been uncommonly big as well. As noted in The Day Ahead, bigger things are at stake.
In that context (not to mention the headline specifically pointing out that “big picture” trumps the econ data), it’s not surprising to see a good amount of concern over the big picture ripping its way through bond markets. Yesterday’s failure to break through the mid 1.8’s pivot zone was a negative indication and follow through selling today simply adds to it.
All that having been said, and as we’ve noted both this morning and yesterday, any highs in Treasury yields that don’t break above the 1.975 post-NFP highs, merely serve to suggest the continuation of a long-slow uptrend in yields. The current micro-trend over the past three sessions would comfortably allow for yields in the 1.96 area by 5pm.
That’s not a prediction by the way. In fact, we’d rather hope that the highs are in for the day. But if things go higher, that’s how much higher they could go without doing anything more than merely continuing negative trends.
10yr yields are currently up 1.5 bps on the day at 1.912 and Fannie 3.0s are down 3 ticks (post-roll) to 104-01. Stocks have come off a bit after the cash open and the pause in the risk-on trade has helped us catch our breath against a quicker pace of selling earlier.
Rather than imply that it’s a stock-market-driven phenomenon, we’d instead suggest that USTs are more tuned in to Europe at the moment, and the domestic stock open coincided with a bounce lower in European benchmark debt and the European currency with that whole package of market metrics being of moderate benefit to the bond complex.
The day is young… Hopefully we’ll move closer to TGIF by the end of it, but for now, we’re feeling pretty defensive. (Keep in mind, we’re FEELING defensive, but MBS are only 3 ticks weaker than yesterday’s close, Treasuries only a bp or so higher). We COULD see a sort of “risk-off” bounce that some market participants have been pining for with stocks at their recent multi-year highs. Too soon to tell for now.