Bonds lost ground moderately and logically on Tuesday in response to the JOLTS data. From here, this week's volatility potential hinges on the Fed. Fed Funds Futures suggest that there's been no change in rate cut prospects for Wednesday's meeting. It remains a nearly a 90% probability and thus a non-event when the cut is announced. The more important events will be the 2pm ET release of the dot plot (individual Fed member forecasts for the Fed Funds Rate) and the 2:30pm press conference with Fed Chair Powell. While it may be fashionable to hold the cynical view that Powell's pressers "always" hurt rates, that's certainly not the case and we have no way to know if it will be the case on Wednesday. At the very least, the bearish set-up over the past 2 weeks should tell you that anything can happen (considering Fed rate cut days have often pushed back against the prevailing trend in rates).
Sideways to slightly stronger overnight, but now weaker after JOLTS data. MBS down an eighth and 10yr up 1.5bps at 4.178
02:10 PM
Weakest levels. MBS down 6 ticks (.19) and 10yr up 2.2bps at 4.185
04:17 PM
Drifting out at weakest levels. MBS down 7 ticks (.22) and 10yr up 2.2bps at 4.185
Lock / Float Considerations
Assume a higher probability of random volatility until the second week of January. Between now and then, events and data carry risk as well, but bonds have been just as willing to move without any obvious catalysts. With JOLTS out of the way, this week's biggest potential source of volatility is Wednesday afternoon's Fed announcement--specifically the dot plot and the press conference.
