While mortgage rates aren’t based on Treasuries, broader bond market trends are much more easily considered in the context of 10yr yields. Those crossed an important level today in closing below 2.555. This is the “line in the sand” we’ve been eying as evidence that bond markets aren’t merely consolidating their September losing streak with plans to continue the weakness.
10’s managed to hit their 3pm close at 2.533 and Fannie 3.5 MBS gained 6 ticks to close at 102-04. Economic data didn’t matter as far as today’s gains are concerned. There’s quite simply a linear push back in the other direction after bonds found support late last week.
If we zoomed in to view only today’s action, we’d see a positive boost kick in shortly after the 2yr Treasury auction at 1pm. This was not a factor of the auction, however. Instead, corporate bond market hedging activities saw the return of some tradeflows that were previously sold as part of the hedging process.
At this point, the technical levels may act as a temporary sell signal for this bounce back. Any further gains would strengthen the technical read on bond markets as that would make for 2 consecutive days closing below our 2.555 level. The implication here would be for an even more developed correction lasting into the end of the month/quarter.