Without a doubt, it's been a frustrating and puzzling week for the bond market. Everyone knows that bonds have moved consistently higher in yield, but there is very little understanding and agreement about WHY that move has taken place. Europe had a rough week, but EU bonds didn't lose as much ground as US bonds, so we can't really stop there. We also know that econ data wasn't to blame (or if it was, traders bought bonds at first and then changed their minds later in the day--not typical behavior, to say the least). Beyond those considerations, we're left with guesses and possibilities that are much harder to substantiate and much more esoteric. These include things like year-end positioning constraints, a move to the sidelines before the Fed announcement, and curve trading driven by one of several factors.
Initially slightly stronger overnight, then weaker with Europe. MBS down 2 ticks (.06) and 10yr up 1.5bps at 4.346
10:01 AM
Additional weakness. MBS down 7 ticks (.22) and 10yr up 3.2bps at 4.362
12:18 PM
More of the same. 10yr yields are up 5.8bps at 4.388. MBS down 10 ticks (.31).
03:10 PM
Leveling off near weakest levels with MBS down 11 ticks (.34) and 10yr up 7bps at 4.40
Lock / Float Considerations
Selling pressure hasn't been extreme, but it has been relentless. It's also occurred despite an absence of compelling economic data (i.e. bonds haven't been selling off due to strong data). All of the above make a case for a lock-biased stance until something changes (reassessing after next week's Fed announcement).
