Today's (and to be fair, this week's) only major econ data--ISM Services--was a mixed blessing for bonds this morning. The only headwind was the uptick in the inflation component to another post-pandemic high. The tailwinds involved all other components suggesting a mild economic deceleration. Traders ultimately gave more weight to the latter. Bonds were slightly weaker before the data, but ended the day closer to unchanged levels. MBS outperformed, presumably due to Treasuries facing down another week of heavy auction supply.
Slightly weaker overnight and little-changed after ISM. 10yr up 2.2bps at 4.215. MBS down 2 ticks (.06)
01:08 PM
No major reaction to 3yr auction. MBS down 1 tick (.03) and 10yr up 1.1bps at 4.204
03:35 PM
Flat in the PM hours. MBS unchanged and 10yr up 1bp at 4.202
Lock / Float Considerations
The ground-holding seen so far in the new week suggests the bond market is at least comfortable with the size of last week's NFP-driven rally. In other words, there hasn't been an attempt to bounce back to higher yields in any threatening sort of way. The only cautionary tale is the absence of follow-through. It increasingly makes 4.20% look like a resistance level. This is something we'd probably care more about if it wasn't a Treasury auction week. As it stands, bonds could simply be giving the appearance of a resistance bounce as they wait to get through auction supply. Either way, the lowest rates in 10 months will always be a compelling lock opportunity for the risk-averse crowd. Risk-tolerant floaters have many overhead lock triggers to choose from between present levels and 4.40%.
