MBS RECAP: Bonds Resilient Streak Under Threat

For the most part, today was marked by the same sort of resilience seen on several recent occasions where bond yields have either held steady or fallen despite decent-to-strong economic data.  In today’s case, it was a fairly healthy (depending whom you ask) improvement in durable goods (cap-ex +0.8 vs +0.1 forecast).  The caveat is that was January data (government shutdown month), and thus taken with a grain of salt.

Producer prices were weaker than expected, and because that was a February report, may have been worth some bond market resilience in the morning.  Either way, bonds were weaker to start the day, but didn’t weaken further after the early data.  

Additional resilience came into play after the 1pm 30yr bond auction.  The auction was weaker than expected, but bonds didn’t really sell-off.  Perhaps traders were waiting to see what would happen with the expected brexit-related votes at 3pm.  

While British politicians didn’t surprise anyone with their decision to avoid a “no-deal” brexit, it was somewhat surprising to see that 3rd draft of a compromise deal has suddenly gained traction.  Additionally, the vote was closer to being in PM May’s favor this time vs last time.  The implication is that Theresa May could get the requisite amount of votes by shifting to the 3rd compromise deal (referred to as “MV3”).  When newswires suggested the same, British pounds sterling surged and pulled US bond yields higher late in the day.  

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/904604.aspx

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