Overnight trading was uneventful for bond markets and made for a just slightly weaker open for both Treasuries and MBS. Economic data was completely and utterly ignored. It wasn’t until headlines out of the UK concerning a “severe” terrorism alert sent UK bond yields sharply lower that US bond markets finally found some motivation to get moving.
From there, liquidity waned severely, leaving the market open to any significant month-end trade flows. In other words, if there were to be even a normal amount of month-end trading around the 3pm Treasury close, it would have an inordinate impact considering it would comprise such a comparatively large piece of the action.
That’s exactly what happened as tradeflows began picking up at 2:59pm. Volume spiked easily to the highest levels of the day as certain accounts were finally able to officially exit their positions for August. 10yr yields shot higher (relative to a narrow range… it wouldn’t look very threatening historically) from 2.325 to 2.345.
MBS fell from 103-02 to 102-29 and stuck a 10 point landing–making it all the more clear that we were dealing with a brief exodus of certain trading positions and a clear line in the sand where the other positions remained. Same story for Treasuries. That’s the way month-end goes sometimes, and fortunately, lenders had been stingy enough this morning that the volatility didn’t bring on any significant reprice risk.