Bonds sold off medium big on Friday in a move that offered little by way of overt explanations. There were reports of "rate checks" in the USD/JPY market--something that CAN precede the selling of U.S. bonds in order to buy JPY. Notably, there were no reports of actual intervention, but sometimes these things aren't revealed until the following trading day. If this explains today's weakness (and to be clear, we're not sure it does), it would be good for the U.S. bond market as it would mean 10yr yields still held under 5% despite added, artificial pressure. Causality investigations aside, we'd focus on the fact that 10yr yields held under 5% (albeit just barely), which is right where they were on the Tuesday afternoon before Fed day.
MBS down roughly a quarter point and 10yr up 4.6bps at 4.979
10:30 AM
MBS down 3/8ths and 10yr up 7.2bps at 5.005
02:14 PM
MBS down 10 ticks (.31) and 10y up 6.6bps at 4.999
05:11 PM
MBS down 3/8ths and 10yr up 6bps at 4.993
Lock / Float Considerations
9/18/26 - Technical levels don't predict the future, but 4.94% has emerged as an important resistance level to break in terms of 10yr yields. 5.00% remains an important level to avoid breaking overhead. Today's trading tested 5.00% repeatedly. We suspect one-off distortions in the bond market today and that we'll have a better sense of how post-Fed momentum is playing out next week. In general though, the default stance hasn't changed since the beginning of July: we continue waiting for a definitive shift/rally before it makes sense to be anything other than conservative in terms of lock/float decisions.
