On 2 occasions this week, bonds set closing yield lows for the month. Moreover, if we strike the craziest day from late May from the record (since Italy was a temporary market mover), we saw the best closing levels since mid April.
It would be nice if we could say that there were any specific, scandalous reasons for such strong levels. Instead, we merely inched our way lower in rates, perhaps catching just a whiff of benefit from the big selling in stocks. In the bigger picture, both stocks and bonds are consolidating–and have been for most of 2018. Stocks are waiting to see if the party is over and bonds are waiting to see if they might be allowed back into the party.
Translation: trade war headlines are a footnote on the essay of the broader economic cycle. The econ data is good now, but markets would prefer to trade the next economic shift well before it happens. I’m not sure if policy developments and early reactions in the data will give them enough confidence in final outcomes to make big moves, but perhaps “big enough” moves for the mortgage market to catch some benefit.
For those looking for specific color today, the only notable development for bonds was the volatility surrounding 3pm. This was month/quarter-end and investors pulled the plug on Q2 positions in a noticeable way at the end of the day. This was true for stocks as well. That said, it was only really noticeable in the context of the past 2 days. Any near term movement quickly gets lost if we zoom out to the bigger picture.