Whereas Friday’s big move higher in MBS was all about one undisputed star of the show, and whereas today’s Retail Sales report had an opportunity to play a similar role on a smaller scale, the day instead ended up being about an ensemble cast. In fact, the Retail Sales didn’t generate much, if anything by way of volatility. If anything, it failed to provide reason for ongoing improvement.
No rate rally wants to get ahead of itself in the exceptionally tough bond-market environment of the past 8.5 months. Just between Thursday and Tuesday, we’ve covered nearly as much ground as the other examples of major corrections against the longer term trend higher in rates, and all of those had well over a week to develop.
In a way, that could be taken to mean that further recovery is still a possibility, but let’s take things one day at a time. For today, the rally hit resistance thanks to a combination of technicals (particularly, 2.84 in 10’s, which offered a bounce both yesterday morning and today).
The x-factor between now and then has been the big swings in equities markets. 2.84% in 10yr Treasuries looked like it would hold as resistance until SPs set about their biggest sell-off of the year. Stocks and bonds certainly haven’t been joined at the hip, but there has been some push and pull.
Today saw stocks pull bond yields back up with another sharp move, but higher this time, erasing most of yesterday’s losses. This was joined by tradeflow considerations that saw more supply in the long end of the yield curve (longer-dated Treasuries) and in MBS. More supply = more inherent weakness, all other things being equal.