The Reasons May be Esoteric, But The Selling is Real
Thu, Apr 10 2025, 5:08 PM
MBS Recap
The Reasons May be Esoteric, But The Selling is Real
MBS Recap Matthew Graham | 5:07 PM
The Reasons May be Esoteric, But The Selling is Real
Bonds sold off today, in spite of a very bond-friendly CPI. One reason for that is the market's assumption that it will need to wait and see what tariffs do to inflation in the coming months. Another reason is the laundry list of reasons discussed in yesterday's recap. A new reason added to today's mix in the form of the passage of the budget framework in the House. As passed, there is $1.5 trillion in spending cuts staked simply on reassurances from Johnson and Thune. Markets didn't love the implications for Treasury issuance. The long end of the yield curve (10yr, 30yr, etc) took most of the damage while Fed rate expectations keep the short end of the curve anchored (i.e. a 2yr Treasury won't drift too far above medium term Fed Funds Rate expectations). So bonds had selling to do and 2s weren't eligible, per se. Result: bigger sell-off than we otherwise would have seen in 10s/30s.
Paradoxically modestly weaker after CPI data. MBS down 5 ticks (.16) and 10yr down 1.3bps at 4.34 ( up from lows of 4.29+).
12:13 PM
Weakest levels. MBS down nearly 3/8ths and 10yr up 2bps at 4.373
03:30 PM
New lows, down almost half a point in MBS and up 5bps at 4.40 in 10yr yield.
Lock / Float Considerations
The current rate environment is one in which is makes absolutely no sense to assume that what you see today will be available tomorrow. It's not the worst-ever example of such a dynamic, and this doesn't mean we're immune from a friendly bounce, but it does mean that the weakness we've seen this week does not entitle bonds to a bounce simply for technical reasons. Data is in the back seat as well, so motivations are especially hard to predict and prepare for.
