The bad news is that bonds resumed their weaker tendencies today with 10yr yields moving back up into the 4.6's. Culprits included stronger economic data, hawkish Fed comments, and possibly the fact that the previous day's gains were driven by corrective short-covering. The good news is a bit of stretch to be considered as such. In order to do so, we must consider that today's high yields stopped well short of the high yields seen on Tuesday. This pattern of "lower highs" is often seen at the beginning of a sideways consolidation, effectively ending the previous directional trend (at least for the time being). It's a bit too soon to conclude that's the way things will play out this time, but on an objective note, today was the first time since April 5th that yields made it past the 48 hour mark without hitting a higher high.
roughly unchanged overnight a hair weaker after data. MBS down 1 tick (.03) and 10yr up 1.7bps at 4.606.
09:41 AM
Back to weakest levels after NYSE open. MBS down an eighth. 10yr up 3.6bps at 4.625.
12:39 PM
More Losses. MBS down 10 ticks (.31). 10yr up 5.4bps at 4.644
03:13 PM
hovering sideways near weakest levels. MBS down 9 ticks (.28). 10yr up 4.8bps at 4.638
Lock / Float Considerations
While Wednesday's gains were hopeful at first glance, we would have needed to see some follow through today in order to confirm a shift in the trend. Instead, the moderate weakness was more like the magic 8 ball saying "outlook uncertain, ask again tomorrow." Yes, trading levels were weaker, but by not being any weaker than Tuesday, it leaves the door open for a choppy, sideways consolidation in the coming days. This potential should not be viewed as increasing the probability of any particular outcome.