We’re not in entirely awful shape at the moment, but noticeably worse-off than 10am-1230pm levels. Bond markets started out in challenging territory today, but were able to mostly battle back into the 10am-11am hour. The scheduled Fed buying from 10:15-11:00am as well as weak economic data provided a good opportunity for tactical buying in bond markets.
But after that bid-side interest dried up, we were left with limited motivation to break into new highs (or new lows in 10yr yields). Combine that with lighter volume and a hefty slate of corporate debt issuance (which can create pressure on bond markets due to “rate-lock selling”) and a few big sell tickets in futures and all of a sudden, the herd moves in the other direction.
For 10yr yields, that leaves us in the worst shape of the morning, but still holding on to the afternoon pivot points from Friday. MBS are outperforming their Treasury counterparts, but nonetheless have fallen well-off their highs of the day. Fannie 3.0’s are down 4 ticks to 103-22 after being as high as 103-28 earlier. In terms of distance from rate-sheet generation time, this isn’t necessarily sufficient for negative reprice risk, but if we continue to trend into weaker territory, the trend itself could be disconcerting enough for increased reprice risk. 103-22 and higher likely constitutes safer territory whereas a break of the morning lows at 103-19 would indicate a negative shift in reprice risk.