Bonds were already having a decent day this morning with overnight market movers bringing yields in line with the lower end of the recent range. Mid-day drama caused massive selling in stocks which spilled over and made for an extension of the already-decent bond rally. The culprit? An unexpected tariff threat from Trump in response to... well... something (seriously, we're not sure). Then, just minutes before the end of trading for the 3 day weekend, an official announcement (again, with cryptic references to untoward actions by China). Bonds managed to rally a bit more as stocks sank more, but there's no telling how this will carry over on Tuesday. Tariffs haven't been reliably beneficial for bonds, but they were beneficial today.
Overnight gains mostly holding. MBS up 7 ticks (.22) and 10yr down 4bps at 4.10
11:26 AM
Another wave of buying after tariff headlines. 10yr down 8bps at 4.06 and MBS up 10 ticks (.31).
02:17 PM
best levels of the day. MBS up just over 3/8ths and 10yr down 9.2bps at 4.048
05:13 PM
Even stronger at the close with 10yr down 11bps at 4.033 after new tariffs officially announced.
Lock / Float Considerations
Friday's massive volatility raises obvious lock/float questions. Naturally, if bonds are surging and stocks are tanking on tariff developments, won't things just get better next week when more of he market has more time to react to the drama? That's faulty thinking. While that COULD happen, there's nothing about what we saw on Friday that would make us expect it any more than we'd expect a reversal. Tariffs have been a double-edged sword for bonds anyway, so there's an extra layer of risk of a correction simply as a function of traders potentially buying the dip in stocks. Big, lasting momentum requires big changes in economic data. Tariffs can play a role in that, but not quickly.
