Nice Rally, But Not Out of The Woods Yet
Bonds rallied in two distinct waves on Monday. The first came in response to the UK finally walking back its fiscal policy statements that started all the drama on Fed week. That said, the timing of the gains suggests we shouldn’t rely exclusively on that news as an explanation. The second wave of gains followed a weak reading across the board in this morning’s ISM Manufacturing data with “new orders” down into contractionary territory and “prices paid” settling back at pre-pandemic levels. From there, we can assume short-covering added to the friendly momentum. Gains stalled right at the EU close and bonds backtracked a bit after that, but retained a 16bp rally in Treasuries and a 3/4 point improvement in MBS as of the 3pm CME close. These feel like logical adjustments in light of the headlines and data. Upcoming economic data still has just as much volatility potential.
Econ Data / Events
50.9 vs 52.2 f’cast, 52.8 prev
51.7 vs 51.9 f’cast
48.7 vs 54.2 prev
ISM New Orders
47.1 vs 51.3 prev
Market Movement Recap
08:43 AM Bonds stronger overnight on EU economic weakness, and most of all on the UK gov FINALLY eating its words on the fiscal change that caused all the drama over the past 2 weeks. 10yr down 12.8bps at 3.7 and MBS up 5/8ths of a point.
10:06 AM Weaker ISM data helping bonds rally. 10yr down 18bps at 3.65 and MBS 3/4ths of a point.
11:27 AM Short covering and short squeezes taking yields down more than 22bps now to 3.60. MBS are up 1.125 points!
02:06 PM Off the best levels now, but MBS still up 30 ticks (.94) and 10yr yields still down 17.8 bps at 3.651.
03:02 PM MBS up “only” 26 ticks (.81) now although 10s remain mostly in line with the previous update (still down 17bps at 3.659).