Both MBS and Treasuries were weaker at the start of today’s domestic session. While that was slightly more pronounced for Treasuries, so was yesterday afternoon’s rally. As such, when viewed against a slightly broader backdrop, MBS are by no means running away from Treasuries, but were able to edge into positive territory by the end of the day while Treasuries stayed in the red.
Adding to the Treasury-specific challenges today was the once-in-a-blue-moon occurrence of an auction doubleheader, with both 5 and 7yr Notes being sold at 11:30am and 1pm. The implied pressure on Treasuries from that concentrated supply–and subsequent relief at the supply being doled out–was evident as yields noticeably eased after 1pm. The fact that the 7yr auction was strong not only helped that easing process, but also speaks to the reality of the current bond market strength in the face of a healthy bounce in stocks. Either that, or month-end buying needs are keeping Treasuries propped up today and tomorrow with a bigger shift waiting in February.
That we’re even able to entertain multiple eventualities (where one of them includes “strong bond markets”) is a welcome change in 2014, but be aware that we’re only now matching October’s correction in terms deviation from broader uptrend in rates. That makes next week’s NFP week and important milestone for this correction.