MBS RECAP: Bonds Bounce Back with Help From Oil and Auction

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Today’s bond market movements were a bit more pronounced than yesterday’s, but similar in some regards.  The first similarly was the inconsequential drifting movement during the overnight trading session.  10yr yields were slightly higher by the domestic open, but the first move was right back down into the prevailing range. 

Today continued borrowing from yesterday’s playbook as the 930am NYSE open brought additional trading cues for Treasuries.  This time, however, it suggested weakness as opposed to strength.  Bonds continued losing ground after the oil inventories data, but oil prices themselves only basked in the glow for a moment before traders seized the opportunity to sell at the new, higher prices.

Bonds rallied with falling oil and stocks, but held something back for the 10yr auction.  The auction itself was decent, but ended up being more of a market mover simply because traders no longer had to wait to get on board with the day’s move.  The gains carried 10’s back to the same old low end of the range at 2.20, making for a relatively tame result to a somewhat more volatile day.

NOTE: If you’re wondering why the MBS charts look so different today, it’s due to the roll.  This means that the right side of a 2-day chart of any Fannie/Freddie 30yr fixed coupon is conveying prices of January coupons, while the left side conveys December coupons.  There was roughly a quarter point gap between the two, regardless of market movement (thus making it look like MBS tanked overnight).

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