MBS RECAP: Bonds Avoid Committing For Better or Worse


It was an uneventful day for bond markets from most points of view.  After opening slightly stronger in Asia, Treasuries sold-off modestly during the first part of the European session.  The key consideration at the time was stronger German inflation data.  Logically, this was a bigger deal for Germany and the EU than it was for US bond markets.  

10yr Treasuries found a ceiling at 2.496 and held it almost exclusively through the domestic session.  On the other hand, they also found a floor just over 2.46 and looked similarly determined to avoid breaking it.  The latter is probably more significant in light of the fact that stocks made a strong move lower today (in other words, recent levels of correlation with stocks suggest bonds should have taken a stab at breaking below 2.46).

So what are we to make of that?  The easiest scapegoat for today was the fairly gigantic corporate bond issuance from Microsoft ($17 billion).  Yields rose from session lows in the early afternoon right after the Microsoft bond was officially launched.  There were no other potential market movers in the immediate vicinity.  If anything, this simply underscores the relative equanimity of today’s trading session.  Things have to be pretty slow in order for corporate bonds–even big ones–to be the most notable source of inspiration.

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