MBS RECAP: Exciting Overnight Followed by Daytime Snooze-Fest


Thank the overnight trading session for an anticlimactic day.  It set a healthy range of highs and lows that daytime trading never managed to break.

No sooner had yesterday’s session drawn to a close than newswires circulated regarding a “likely indictment” in the clinton email case.  There wasn’t any specific mention of WHO, exactly, might be indicted, but it was nonetheless interpreted as damaging Clinton’s chances.  At the moment, that which damages Clinton’s chances helps not only Trump’s, but also the bond market.  

Bonds weakened progressively from there, only stopping briefly to consider news that a British court ruled that Brexit required a parliamentary vote.  Of course that won’t be the final word on the matter, the confused murmurs of “wait, you mean Brexit might not actually happen?!” were enough for bonds to recover just slightly.  The gains were limited mainly to British bond markets with little spillover to US Treasuries.

The biggest news of the day came right at the end of the overnight session as the Bank of England announcement left policy surprisingly unchanged.  Markets expected some more easing and British 10yr shot up a quick 6bps as a result.  US 10yr yields only rose 1-2bps during the same time, but that was enough to take them to session highs of 1.833.  

Every moment that followed was a mere consolidation back toward unchanged levels.  Data didn’t seem to matter for better or worse.  Bonds simply trickled back to slightly “less weak” levels, without ever returning to positive territory on the day. The only possible exception was the marginally weaker ISM Non-Manufacturing data, which, at best, may have sped up the trickle.

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