MBS RECAP: Afternoon Insult Added to Morning Injury

News

Bond markets began the day in weaker territory following overnight weakness in European bond markets.  In addition, bond buyers generally got their fill by the end of yesterday morning’s snowball rally and then had nowhere to go but back toward higher yields.  Put more simply, 10yr yields stalled out at a floor of 2.38+ yesterday and failed to break it again overnight.

The domestic session didn’t turn ugly until late afternoon when European bonds sold-off into their closing bell.  Adding even more pain was the sharp improvement in equities markets.  While stocks and bonds haven’t necessarily been joined at the hip, both sides were waiting for a bigger move to be made over the past few days.  Today’s move in stocks is the most compelling attempt so far.

There were other potential market movers in play today.  These included the 10am Existing Home Sales release (5.49mln vs 5.52mln forecast) and afternoon comments from an ECB official regarding the tapering of asset purchases.  Only the latter could be argued to have a detrimental effect on domestic bond markets, but given that the timing coincided with the stock market surge, it would be hard to prove.

Looking beyond “cause and effect” we could be just as content (or discontent, as the case may be) to consider yields moving inside the slightly expanded range discussed in this morning’s commentary.  With 10yr yields going out the door under that 2.47+ line, we’re still very much inside the recent range, even if we’re on the less pleasant side of it.

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