As we’ve been discussing fairly regularly, bond markets have been consistently dragged to better and better levels so far in the new year, by massive losses in equities markets. It was only a matter of time before stocks had a flat day or better. Today was that day–barely.
Stocks weren’t even in positive territory for most of the day, nor did they close any higher than they opened, but they did manage to end the day just slightly higher than they ended Friday’s session. The only other time they’ve done that this year was January 5th which was incidentally the only other time bond markets lost ground this year.
This time around, bonds were more pent-up after having been dragged to their best levels in more than 2 months by the end of last week. This, combined with the upcoming glut of supply (Treasury auctions and corporate debt issuance = bond market “supply”) made the consequences steeper. 10yr yields rose 6bps. As usual during sell-offs, MBS fared a bit better, with Fannie 3.0s losing only 7 ticks in price (relative to 17 ticks in price for 10yr Treasuries).