Bonds Close Weaker After Early Volatility and Late-Day Illiquidity
As has been the case for so many afternoons of late, bonds traded in a narrower range than the one seen during the AM hours. Today’s AM hours were always at risk of being a bit more volatile due to the presence of the European Central Bank (ECB) announcement and press conference. In fact, the actual volatility fell short of what we’d typically expect to see on ECB days. The initial move was stronger, but bonds quickly corrected to slightly weaker territory after hearing from ECB president Lagarde (specifically, that inflation risks were possibly bigger than than expected). The final few hours of trading saw bonds slide into even weaker territory due to liquidity issues.
Econ Data / Events
222k vs 240k f’cast, 228k prev
Market Movement Recap
08:52 AM Slightly stronger overnight. Pulling back a bit after ECB announcement and stronger claims data. MBS still up 2 ticks (0.06) and 10yr yields are still down 1.3bps at 3.254, but notably, just moved to their highest levels of the morning.
09:18 AM Quickly into weaker territory now as Lagarde talks about more hikes and policy tightening. 10yr up just under 2bps at 3.28+ and MBS down about an eighth on the day and a quarter from the highs.
01:47 PM Weaker levels seen earlier this morning acted as support and MBS have been broadly sideways since then, currently down only 2 ticks (.06). 10yr yields are up 1.3bps at 3.283.
03:23 PM Very flat in the PM hours–especially for Treasuries. 10yr up 2bps at 3.288 and little-changed for the past hour. MBS slipping just to the edge of their sideways ranges in late trading (liquidity isn’t helping). 4.0 coupons down just over an eighth of a point.
04:38 PM More weakness since the last update, with liquidity issues being the easiest scapegoat to blame. 10yr up 5.5bps to 3.323. MBS down more than a quarter point on the day.