February 19th through March 3rd marked an exceptionally directional rally for bonds. The following day brought the big blow-up in German debt, and the start of the consolidation in US rates. Granted, if domestic economic data been weaker, the rally may have tried to soldier on, but after the jobs report came out near consensus, that was that. As has been the case for several years, the next major report after the jobs report is CPI, and CPI is arguably even more important at the moment. This isn't to say we're guaranteed to see a big reaction--only that the potential is there, should the data come in much higher or lower than forecast. As for today, it was just another in the ongoing consolidation with bonds determined to move back to the higher end of the recent sideways range after moving lower yesterday.
Initially stronger early in the overnight session, then selling steadily. MBS down just over an eighth of a point. 10yr up 2.2bps at 4.232
01:29 PM
Weaker into the PM hours but leveling off now. MBS down an eighth on the day and 10yr up 1.5bps at 4.227
02:26 PM
10yr yields are up 6.5bps at the highs of the day (4.276). MBS down 10 ticks (.31)
Lock / Float Considerations
Even though bonds saw solid gains on Monday, the underlying message was largely the same as last week: rally momentum is overbought and it will take an increasing amount of "convincing" if we're to see additional meaningful improvement. While several factors can contribute to "convincing," none of them can have too much of an impact until and unless we see Wednesday's CPI come in at or below forecast.
