Bonds had a chance to make the big potential correction of early 2019 a 1-day affair. That would refer, of course, to last Friday’s bond market weakness that followed an exceptionally strong jobs report and a market-friendly speech from Fed-Chair Powell. In this case, the “market” = the stock market, which is bad news for bonds.
Bonds had been thriving, in part, on stock market weakness. And part of the stock market weakness was predicated on an ostensible ignorance on the part of the Fed about the damaging effects of its monetary policy stance. In Friday speech, in not so many words, Fed Chair Powell took the opportunity to let the stock market know that the Fed hears it loud and clear.
Stocks subsequently bounced and bond markets continued to move into weaker territory–a process they began earlier in the morning following the strong jobs numbers.
Today, then, stood the chance to add fuel to that fire. It didn’t look like it would do so at first, but after the ISM Non-Manufacturing data, bond yields and stock prices moved higher and higher throughout the rest of the trading session.
10yr yields ended the day up 3bps at 2.698%. MBS fared better with Fannie 4.0 coupons losing only 2/32nds (0.06) to end at 102-00 even.