As of the 3pm Treasury pit close (the unofficial end of the day for bond markets), little, if anything has changed from this morning. Despite having a wide variety of potential market movers in play, bond markets instead saw a session that would be hard pressed to be more uneventful.
Treasuries were slightly weaker in the overnight session with yields pushed higher by a generally improving risk tone. This may have had something to do with stronger Chinese GDP, but even without it, there was still some ‘unwinding’ to do from yesterday’s Ukraine- inspired flight-to-safety. When we see such flights, bond markets are preemptively moving into stronger territory on the chance that geopolitical tensions continue escalating rapidly. If geopolitical tensions to anything else, bonds lose some of those gains.
That general theme made for weaker opening levels in MBS, though just as they underperform Treasuries into the risk rally, they outperform into the unwinding of that rally. In other words, MBS weren’t as weak as Treasuries at the open, when compared to yesterday’s latest levels.
Weaker Housing Starts data helped bond markets hold their ground against further losses and from there on out, bonds held on to the weakest levels as a supportive barrier. For what it’s worth, those supportive levels were starkly in line with yesterday’s weakest levels.
When bond markets continue to trade INSIDE yesterday’s range (aka an “inside day”), it tacitly confirms one of two things. Either there’s a tremendously well-balanced battle between bulls and bears, or the day is simply uneventful. Given the lack of concerted effort to push in either direction combined with the tepid economic data and tomorrow’s early closure before an extended holiday weekend, we’ll go with the latter (i.e. “simply uneventful”).