Bonds Not Keen To Catch Falling Knives

Oil lurched higher again overnight which kept generalized pressure on the bond market and the Fed rate outlook. The nearness to long-term highs had traders feeling very reluctant to step in and "buy the dip" in bond prices. This is the kind of move you'd rather see play out in full before reloading TSY longs. Complicating factors included earnings season (and the prospect for corporate issuance detracting from TSY/MBS demand), pre-ECB defensiveness, and MBS-specific underperformance. The latter could simply be the result of a line in the sand being crossed in Treasuries and a repricing of extension risk among MBS heavyweights. Last but not least, the 7:30am-8:00am time frame may well have involved large asset managers dumping both sides of the stock/bond continuum. That movement didn't line up well with any other convenient explanations. The net effect was the highest bond yields in over a year, and the same story for mortgage rates. There will be a supportive bounce eventually, but everyone's waiting for someone else to bet their wallet on it.