Bonds improved fairly steadily in the AM hours. After an initial glut of buying demand in the first hour of trading, there was a linear trend channel to the best level of the day right at noon ET. After that, a similarly linear trend took bonds back toward (but not into) weaker territory. None of the above occurred outside a range that we'd consider anything other than uneventful. Overseas data and trading likely helped play a role in the ebb and flow. The 3yr Treasury auction didn't have a big impact, but concession-building for tomorrow's 10yr auction could have contributed to the afternoon weakness.
modestly stronger overnight with better buying after the 8:20am CME open. MBS up 5 ticks (.16) and 10yr down 4bps at 4.445
11:44 AM
Best levels of the day with MBS up 6 ticks (.19) and 10yr down 6bps at 4.425
01:54 PM
No major reaction to 3yr auction. MBS still up 6 ticks (.19). 10yr down 4.1bps at 4.445
02:43 PM
steady weakness in the PM hours, but still stronger on the day. UMBS 6.0 still up 6 ticks (.19), but down an eighth from the highs. 10yr still down 2.8bps at 4.458 but up almost 4bps from lows.
04:04 PM
Modest bounce keeps bonds safely green in the final hour. MBS up 6 ticks (.19) and 10yr down 3.3bps at 4.454
Lock / Float Considerations
Lower risk and lower reward now that bonds have slid into a lower consequence week. The calendar is very light and next week's CPI looms large as a huge potential win or loss (something that should keep bulls and bears from getting too excited in the meantime). Defensive clients are considering the nice rate sheet improvements over the past 5 days. Combined with the more sideways outlook, it presents a logical opportunity to circle the wagons. Risk-tolerant clients are waiting for bonds to do something more threatening before taking chips off the table.