Best Rally in Weeks. Should We Care?
Days like Wednesday remind us of days like February 11th. At the time, yields had just spiked to the highest levels since 2019 on Feb 10 and then experienced a rally that fully erased those losses on the 11th. It was very tempting to conclude that rates wouldn’t go much higher considering they’d already been trending higher for more than 6 months, off and on (covering more than 80bps in the process). We never got to find out how well Feb 11 would have played out due to the Ukraine war, but at the very least, the following week didn’t bring any rate-friendly follow-through. Rates are even higher now. The higher they go, the closer we are to an eventual ceiling, but accurately identifying that ceiling without the benefit of hindsight is a risky proposition. All we know is that this is the best chance we’ve seen so far for short-term reprieve, but not one that we’d feel confident betting on without evidence of broader support.
Econ Data / Events
Fed MBS Buying 10am, 11:30am, 1pm
New Home Sales 772k vs 810k f’cast, 788k prev
Market Movement Recap
08:29 AM Slightly weaker early in the overnight session. Slightly stronger in Europe and now roughly unchanged at the start of the domestic session.
09:16 AM Nice little rally at 9:12AM apparently driven by UK bonds in response to comments from British Finance Minister Sunak. Emphasis on “little” though. 10yr down only 2.2bps at 2.359 and MBS up 7 ticks (.22) at 100-05 (100.16). It looks to have run its course for now.
11:20 AM Rally topped out shortly after 9:30am NYSE open. MBS now up only an eighth and 10yr down only 1.6bps.
12:58 PM Now back toward best levels for MBS and lows of the day in 10yr yields. Decent correlation with stocks speaks to some measure of “risk-off” trading (but without any overt justification for bonds apart from technicals/dip-buying. Possible 20yr auction front-running.
04:04 PM Best levels of the day as the risk-off rally continues. 10yr down 7.2bps at 2.29% and MBS up 13 ticks (.41)