MBS Flip Script After Treasury Auction; Bonds Refuse to Chase Stocks
It was a fairly sloppy day of gains for the bond market with Treasuries noticeably lower in yield early and MBS underperforming. The script was flipped in the afternoon as a strong 2yr auction helped the market narrow down the value of shorter-dated bonds. MBS are shorter in duration than the 10yr, so it was no surprise to see outperformance as 2s handily outperformed 10s. From a technical standpoint, it was perhaps telling that 10yr yields refused to break the 1.71% pivot point despite stocks being down more than 4% (S&P). Frustratingly, bonds gave up some ground as stocks came surging back in the last hour of trade.
Econ Data / Events
Fed MBS Buying 10am, 11:30am, 1pm
Markit Composite PMI ……..50.8 vs 57.0 prev Markit Services PMI ………..50.9 vs 57.6 prev Markit Manufacturing PMI …55.0 vs 57.7 prev
Market Movement Recap
09:01 AM Flat during Asian hours, then stronger in response to a sharp rally in EU bonds. Weaker stocks helping bonds early. Treasuries outperforming, 10yr down 5.4bps. MBS up an eighth of a point.
11:47 AM Relatively extreme selling in equities with S&P futures down over 3%. Bonds not very receptive with Treasuries trading sideways all morning. Levels are in line with the last update, but MBS have ticked up a bit more (up .19 now in 3.0 coupons).
01:28 PM MBS outperforming noticeably since 1pm following a strong 2yr Treasury auction (and its implications for curve steepening). 3.0 coupons up more than a quarter point now while 10yr yields remain in line with previous levels.
03:46 PM Treasuries weakening slightly, apparently in response to a late day stock surge (even though they weren’t willing to follow stocks lower earlier). MBS have been outperforming, still up a quarter of a point even though 10yr yields are now only up 1.5bps.