This morning, we noted the lightness of the selling pressure that took bonds into modestly weaker territory. It turns out it was so light that it was easy for bond buyers to get back on top un the afternoon hours. There was a bit of help from the Fed's much-anticipated announcement of a change to banking rules that will effectively allow banks to hold more Treasuries than before. This wasn't a big market mover and its impacts would play out in the background over time, but it did seem to help to the tune of a bp or two today. With that, yields hit the 3pm close at their lowest levels since May 7th, just barely edging out yesterday's marks.
Flat overnight and modestly weaker just before the open. MBS down 3 ticks (.09) and 10yr up 2.9bps at 4.321
12:51 PM
Decent rally ahead of 5yr Treasury auction. 10yr up only 1.3bps at 4.305. MBS down only 1 tick (.03).
01:43 PM
No major response to 5yr auction. 10yr yields up 2bps at 4.312. MBS down 2 ticks (.06).
03:45 PM
Best levels of the day with MBS up 2 ticks (.06) and 10yr down nearly 1bp at 4.284
Lock / Float Considerations
We expected the market to be increasingly receptive to any shift in tone from Powell in this week's testimonies and Tuesday didn't disappoint. Powell was arguably only slightly more dovish, but bonds were happy to trade accordingly. Wednesday's testimony is less consequential unless he reiterates near-term rate cut possibilities in a more forceful way. Apart from that yields are pushing a breakout of the bottom of their trading range which is typically a cue for the risk averse crowd to do what they do best. Risk tolerant types just have that much more room overhead to set stop-loss lock triggers. Just be sure you're moving those triggers down as the market rallies (i.e. a classic "trailing stop").
