MBS RECAP: Bonds Might Have Done Even Worse if Not For Stocks


If you follow equities markets much, you know that today was pretty ugly–especially for the tech sector.  In fact, most equities analysts are blaming the tech sector for the sell-off.  I might add that the notion of ECB tapering isn’t a friend to stocks either, and it regained traction today according to currency and bond markets.  

There are several headlines that we might focus on in order to justify the bond market negativity but ultimately, the biggest volume selling of the day was completely unrelated to any available news.  This suggests one of two things: either traders are making big month-end adjustments (like a few big traders that may have bought too many bonds too early in the month-end buying process).  Or traders are increasingly pricing in the risk of ECB tapering.  

The latter continues to feel like the bigger risk considering even the “retraction” offered by the ECB was still technically an admission that a tapering decision is coming soon.  We wouldn’t really expect a tapering “decision” to leave the door open for the ECB to double down on its commitment to bond buying.  So “decision” really means “tapering.”  

The major unknown thread running through this whole unpleasant tapestry of bond weakness is the calendar.  We have the end of the month and quarter officially hitting tomorrow.  Both of these can create serendipitous tradeflows that are wholly disconnected from any overt motivation.  Then there’s the holiday in the US next week.  This makes for a short day on Monday and a full closure on Tuesday.  All of the above is followed by three big days of data culminating in NFP on Friday (the next big ECB meeting isn’t until 7/20).

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