If you wanted to see any significant movement in bond markets today, you had to be tuned in before 10am. Even then, most of the drama occurred right at the start of Asia’s business day following a big miss in Japan’s GDP. Stocks and bond yields fell in concert, and fans of low mortgage rates rejoiced.
But the bond market levity was short-lived. The problem with the Japan-inspired rally is that it took trading levels farther than they were programmed to go to start the day. Incredibly firm (and uncannily robotic) technical resistance kicked in for 10yr Treasuries at 2.28, and yields never made it any lower despite 100’s of attempts between 8:30pm and 2am.
At that point European bond markets began their day with one major, positive adjustment to catch up to the Treasury rally and then spent the rest of the day moving into gradually weaker territory. The least gradual moments occurred around 8:40am when a confluence of European Central Bank headlines, large block trades in Eurodollar futures, and a rapid increase in corporate debt-related tradeflows conspired to push bond markets quickly to their weakest levels of the day.
From that point on, bonds barely budged. As a testament to the Treasury-specific stresses brought on by the corporate debt hedging, MBS visibly outperformed. Fannie 3.5s closed in positive territory while 10yr yields rose 2bps by 5pm.