Stocks put in another day of gains today. This is important for 2 reasons. First, they–and by “they,” I mean the SP and SP futures, which is the closest thing we have to an archetypal representative (like Treasuries are for bond markets)–ended yesterday’s session right on an important technical ceiling that had, thus far, prevented a bounce back from the late August sell-off. It’s also important because stocks and bond yields have been quite correlated of late.
In other words, an ‘up day’ in stocks ran the risk of putting upward pressure on rates. Instead, rates held their ground for a 2nd straight day. Once again, this was more true for mortgage rates specifically as Treasuries lost a bit of ground. The MBS outperformance can be explained as easily as you’d like it to be. On the easy end of the spectrum, we can simply say MBS almost always perform a lesser shadow of the same movement seen in Treasuries. On the more complicated side, we could point out the day’s big corporate bond offering from Goldman ($5 bln total).
What we can’t explain just yet is the divergence between stocks and bonds. It’s small enough for now to avoid demanding an explanation, but that will cease to be the case if stocks continue making gain next week.