Stepping back from the more tightly focused 1-2 day time frame and this morning’s market movements have been relatively inconsequential, especially given the nearness of the Fiscal Cliff deadline and lack of meaningful progress. But in the context of this morning, stocks spiked following a soundbytes from Rep Van Hollen citing progress in talks between Biden and McConnell, as well as a similar clip from Corker roughly 20 minutes, simply mentioning he expects a deal today.
Treasuries were doing a better job of marching to the beat of their own drummer until then, having moved from 1.73 to 1.694 in the European session. As stocks swung higher, 10yr yields followed, moving back to the same 1.73 overnight. For their part, MBS have taken the news mostly in stride, falling from 104-29 highs just after the open to 104-21 before bouncing back as Treasuries and stocks came off their highs.
There are no significant scheduled data sets today and bond markets will close early at 2pm Eastern. Volume has been better than the days before and after Christmas, but still very low compared to longer term averages. The most striking feature of today’s trade thus far has been the faithful, even if slightly delayed, adherence to the stock lever.
To that end, the equities open could be the next informative event with SP’s looking like they favor a bit of weakness in the first few ticks of the cash open. Bond markets continue to follow with 10’s moving back down into the mid 1.71’s and MBS back up to 104-27, just 1 tick weaker than Friday’s close. Naturally, the caveat is in order that these are just the first 2 minutes of domestic stock markets being open, and we’d imagine that a reversal in the slightly negative sentiment so far would prompt a similar reversal in bond markets. Of course the caveat there is that all this is happening on a small scale… Zoom out to a 3 day+ view and none of these swings matter.