The day began as so many days over the past few months with bonds moving higher in yield for reasons that transcend the typical economic data or news headlines. The Christmas holiday week is particularly random in terms of directionality due to low volume and liquidity. That ended up being beneficial today with a strong 7yr Treasury auction resulting in a favorable imbalance between buyers and sellers. Light liquidity/volume magnifies the impacts of such imbalances. The result was one of the biggest reactions to a 7yr Treasury auction in several years. That's not a high bar, but was nonetheless worth 4bps in 10yr yields and a move from weaker to stronger territory on the day.
Moderately weaker overnight and little changed after data. MBS down 6 ticks (.19) and 10yr up 4.9bps at 4.634
11:54 AM
recovering somewhat. MBS down 1 tick and 10yr up 2.6bps at 4.611
01:05 PM
MBS now 1 tick higher after strong 7yr auction. 10yr yield up only half a bp at 4.59
03:14 PM
Holding near best levels with MBS up an eighth and 10yr down nearly 1bp at 4.578
Lock / Float Considerations
All bets are off until further notice following the Fed day rout. That said, it has been and continues to be the case that any meaningful improvement in rates will require downbeat economic data and softer inflation. At this point in the year, we're waiting until early January for the next major shoes to drop (NFP and CPI, specifically).
