The holiday theme continued today, with bonds trading inside the range that’s been intact since last week’s Fed festivities.
As I’ll likely mention a few more times before the end of the year, the lighter volume and liquidity associated with late December trading makes it easier for imbalances to have an effect on trading levels. That was the case this afternoon as news that would have been insignificant on any other day caused a reaction in oil prices that would have been inconsequential to bond markets on any other day.
This time around, the drop in oil prices made for a noticeable reaction. Bonds had been drifting into weaker and weaker territory for most of the morning, but were finally able to find their footing after the move in oil. That was the first and last meaningful momentum in bonds for the day. 10yr yields remained in a narrow range through the close, roughly 1.5bps higher day-over-day. Fannie 3.5s ended down only 2 ticks.