Lots of Competing Motivations Causing Volatility In a Narrow Range
Thu, Jul 25 2024, 3:29 PM
MBS Recap
Lots of Competing Motivations Causing Volatility In a Narrow Range
MBS Recap Matthew Graham | 3:28 PM
Lots of Competing Motivations Causing Volatility In a Narrow Range
Today marked an uptick in the importance of economic data for the week and it had obvious consequences for volatility. Of particular importance was the higher reading in quarterly PCE prices. Because this is the first look at Q2 data, it's one of 4 days each year where the PCE component of the GDP data offers a sneak peek at the full PCE report that comes out the following morning. the 2.9 vs 2.7 reading suggests there's extra inflation that will be distributed between April, May, and June. If June accounts for more than the other two months, tomorrow's PCE index will be higher than expected, and thus bad for rates. That accounts for some weakness this morning, but traders are also in the midst of adjusting their yield curve positioning which has resulted in big discrepancies between longer and shorter term rates this week.
Sharply stronger overnight but losing ground after data. MBS still up 7 ticks (.22) and 10yr still down 5+ bps at 4.24.
11:51 AM
Decent amount of volatility in the AM hours. Slightly negative drift, but MBS still up 6 ticks (.19) and 10yr still down 6bps at 4.229
01:43 PM
Generally weaker after the auction, with losses focused on the short end. MBS still up an eighth. 10yr still down 3bps, but near highs of day at 4.258
Lock / Float Considerations
This week's weakness makes the case that bonds have been correcting off the strong levels achieved last week. The risk averse approach would be to wait for further correction to be ruled out. Risk tolerant clients are increasingly close to having their overhead lock triggers taken out, depending on the trigger of choice. That said, the rest of the week may have more to do with data than technicals and curve trading.
