Treasuries and–by default–MBS are still more than willing to take cues from European bond markets. This is especially true in the overnight session where Treasuries frequently and faithfully follow German Bund yields. MBS then benefits (or suffers) at the open accordingly.
But as the US session ramps up, that’s when we’ve been seeing more autonomy in US markets. While it’s no surprise to see US trading setting the tone during US Trading hours, it raises a question as to how much European market movement will be required to get US markets to follow some of the bigger technical breakouts.
Today was a good case study for that as German Bunds broke and remained at new all-time lows. That break was likely to result in US 10yr yields breaking below 2.47, and indeed it did. But then 10’s trickled back above 2.47 by the end of the day. US markets can only defy the global momentum for so long, but their breaking point (for a move below 2.40%) remains unclear. European markets may have a clearer picture of their next sustained move after tomorrow morning’s European Central Bank Announcement at 7:45am.
Fannie 3.5s ended the day 3 ticks higher after being as much as 9 ticks higher at the open.