Today was the 4th day of the year that stocks closed higher than they opened. In other, far from coincidental news, it was also the 4th day of the year that 10yr yields closed higher than they opened. That’s really all there is to it–at least until the dramatic downtrend in stocks is officially over. Until then, these periodic bounces will continue to result in bonds bracing for bigger impacts.
In other words, if stocks were to continue significantly higher tomorrow, bonds would rather be in position for it, instead of playing catch-up. The 4bps increase in 10yr yields is a mere token in the bigger picture, but it gets bonds a small cautionary head start without being onerous or difficult to reverse. We’d need to see serious strength in stocks before we see a serious bond bond market bounce.
MBS outperformed, as they tend to do when Treasuries sell off. Fannie 3.0s were down only 7 ticks on the day. Rate sheets outperformed MBS as lenders tend to have extra margin amid ongoing rallies. This allows them to better absorb these sorts of pull-backs.
Economic data fell on deaf ears. No surprise there.