MBS RECAP: For Steady Bond Rally, Reasons Shift, but Results Remain


Bond markets continued their recent trend of moderate improvement today.  As has been more commonly the case, Treasuries outperformed MBS, but only slightly.  Both were at their best levels since early July.

As for motivations, bonds spent all of the overnight session following equities markets.  The latter were attuned to another rout in Chinese stocks.  The selling varies in severity depending on who you ask.  Either way, it was enough for the Chinese government to step in and say they would be buying more stocks by the end of the day.

This morning’s economic data was lost in that shuffle to some extent.  Durable Goods came in at +3.4 vs a median forecast of 3.0.  At face value, this should have caused weakness for bond markets, but the opposite ended up being the case–or at least it appeared that way. 

There was definitely some sort of trading reaction to the 8:30am data, but assigning it to the data headlines is tricky.  First of all, we had a move toward lower yields already in progress by the time data came out.  Traders know that Durable Goods can move markets and it’s more than possible that many were waiting on results before making certain trades.  It could be the case that the number simply wasn’t strong enough to shift the momentum that was already in place. 

For those that need to strongly connect data to the move, we can also argue that the internal components painted a gloomier picture than the headline.  Either way, the focal point of the session ended up being the first 15 minutes of NYSE trading.  Once stocks bottomed out, so did bond yields, thus beginning a sideways drift that lasted through the close.

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