The day began with a bond market that looked like it might take an opportunity to retrace a small portion of the gains seen in recent days. Even at its worst, it wasn't that threatening (i.e. 10yr yields never rose above 3.98%). But any notion of a pull-back was effectively erased at 1pm with the results of the 20yr bond auction. Bids totaled 2.73 times the auction amount--right in line with the 6-auction average and the yield came in 1.3bps lower than expected. A 20yr auction wouldn't normally be an obvious market mover, but the muted range and dearth of data made the reaction more noticeable. With that, bonds moved back into positive territory on the day and held steady through the 3pm close.
Losing some ground after opening stronger. MBS down 2 ticks (.06) and 10yr up 0.5bps at 3.974
01:52 PM
Decent recovery after 20yr auction. MBS up 1 tick (.03) and 10yr down 1.8bps at 3.952
03:33 PM
Just off best levels. MBS unchanged and 10yr down 1.5bps at 3.955
Lock / Float Considerations
As rates continue flirting with longer-term lows, risk-averse clients remain in lock mode. Meanwhile, risk-tolerant clients continue to enjoy the absence of any major corrections as they wait for more negative volatility to force their hand. The trend is your friend until it's not.
