Whether today had ended up positive or negative, the assessment would be the same. It strains credulity to consider, but when human beings that are normally integral participants in bond markets are out of the office, things change. And said human beings have certainly already begun the holiday exodus. That means 2014 is effectively over, and the rest of the movement we see in MBS Prices will not necessarily be indicative of reality or offer any hints about the first trends of 2015.
Today could have gone either way, and it happened to be good. A rally was the less eventful conclusion to this week, given the relatively sharp selling over the past 2 days. In other words, it acts to consolidate the recent range, rather than extend a counter-trend move.
If I was to try to draw connections between things that were happening in the world and today’s bond market movements, I might first point to overnight strength in European bond markets. This week’s sell-off began as soon as Europe looked like it was reversing course (before FOMC). The fact that European bond yields held their ground this morning despite strong data in Germany was probably reassuring to US bond markets. The afternoon was anchored by the release of the Treasury index (preliminary estimates) that informs “month-end” buying. As such, with the holiday upon us, it’s not unfair to suspect some early month-end positioning.