Bonds have been threatening to end their pleasantly surprising stint of gains over the past few weeks on each of the past 4 business days. Yesterday’s weakness was technically enough to start packing up the party supplies, but an isolated day of trend breakage is always more meaningful when it brings a friend.
Today was the friend–only in our case, it’s the friend of an enemy. In other words, today’s moderate bond market weakness confirms the breakout of the stronger trend that had been intact during the previous 2 weeks.
The losses can’t be traced to any singular event although we can see that most of the weakness occurred during European hours overnight. News of a potential Brexit re-vote added to the mid-day weakness and actually prompted bond yields to hit their highs of the day. But as details emerged, the truth was a bit less dramatic than the initial headlines suggested. Bonds calmed back down and managed to end the day only about 1bp higher in 10yr yields and 1 tick (0.03) lower in Fannie 3.5 MBS prices.