Thursday could be viewed two ways. On one hand, bonds lost ground early and were unable to recover it by the 3pm close. On the other hand, there was a decent rally on Wednesday that set a high bar for additional gains. In other words, it's a victory to merely hold close to yesterday's closing levels. Data passed without a trace, either because it was stale, near consensus, or both. There was better buying in the afternoon--a fact that's consistent with our observation that the EU session had an impact today. The afternoon bond market recovery commenced when EU markets closed. Correlation, yes, but not necessarily causality.
Modestly weaker overnight and no reaction to AM data so far. MBS down an eighth and 10yr up 1.7bps at 4.258
10:30 AM
No major reaction to PCE data. MBS still down an eighth and 10yr up 2bps at 4.261
12:37 PM
Bouncing back a bit. MBS down only 2 ticks (.06) and 10yr up only 1.3bps at 4.254
03:22 PM
MBS down 3 ticks (.09) and 10yr up 0.8bps at 4.249
Lock / Float Considerations
Geopolitical risks began to ebb on Wednesday with potential Greenland de-escalation. This helps resolve and rebalance the asymmetric risk we noted on Tuesday. Bonds have been reasonably flat since then and data hasn't been notable. For risk-averse clients, it's worth remaining defensive until we can rule out an aftershock to Tuesday's sell-off. Either way, one of two things is required for a meaningful push back toward lower rates: more selling to set an entry point for buyers, or legitimate deterioration in big ticket data (and there's none on the horizon until the first week of February).
