Whether one wants to give credit to the big rally in Japanese bonds, the weak labor market implications in the Consumer Confidence data, or the simple matter of re-positioning after a 3.5 day weekend, bonds managed to hit their best 3pm close in 2 weeks. Given the heavy, directional selling in May and the 15+bp recovery from last week's high yields, there's a temptation to view last week a short-term ceiling until further notice. Wednesday's 5yr Treasury auction will be informative in that regard, but it's next week's data that's more capable of informing bigger picture momentum shifts.
Bonds rally modestly overnight and add to gains early. MBS up a quarter point and 10yr down 5.2bps at 4.462
12:19 PM
Gains continue. MBS up almost 3/8ths and 10yr down 7.8bps at 4.436
03:57 PM
Mostly sideways in PM hours. MBS up 10 ticks (.31) and 10yr down 7.4bps at 4.44
Lock / Float Considerations
Rates have managed to find support at recent high yields after spending most of May moving decisively higher. We're now watching and waiting to see if the supportive bounce has legs. This would be the earliest possible moment that risk takers might finally considering something other than locking for the past several weeks. The counterpoint and caveat remains that a truly worthwhile rate rally will require sharply weaker economic data, a consistent failure of tariff-driven inflation to materialize, and/or a legitimate reason to expect lower Treasury issuance.
