Best rally in weeks. Should we care?

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MBS live recap: Best rally in weeks. Should we care?

1 hour, 22 minutes ago

Days like Wednesday remind us of days like February 11. At the time, yields had just climbed to the highest levels since 2019 on February 10, then had a rally that completely erased those losses on February 11. It was very tempting to conclude that rates would not rise much being given that they had already trended higher for more than 6 months, intermittently (covering more than 80 basis points in the process). We never got to know how well February 11 would have gone due to the war in Ukraine, but at the very least the following week did not bring a favorable follow-up to rates. Rates are even higher now. The higher they rise, the closer we get to an eventual top, but accurately identifying that top without the benefit of hindsight is a risky proposition. All we know is that this is the best chance we’ve seen so far for a short-term reprieve, but not one we’d be confident betting on without evidence of wider support.

  • Buy MBS from the Fed 10 a.m., 11:30 a.m., 1 p.m.

  • New home sales 772k vs 810k f’cast, 788k prev

08:29

Slightly weaker at the start of the night session. Slightly stronger in Europe and now roughly unchanged at the start of the domestic session.

09:16

Nice little rally at 9:12 apparently driven by UK bonds in response to comments from UK Finance Minister Sunak. Emphasis on “little” though. 10y down just 2.2bps to 2.359 and MBS up 7 ticks (0.22) to 100-05 (100.16). It seems to have run its course for now.

11:20 a.m.

The rally ended shortly after 9:30 a.m. from the NYSE open. The MBS only rose by one eighth and the 10-year fell only 1.6bp.

12:58

Now back to the best levels for MBS and today’s lows for 10-year yields. A decent correlation to equities is indicative of some measure of “risk-free” trading (but no obvious justification for bonds outside of technical/downside buys. Possibility of a 20-year auction in the lead.

4:04 p.m.

Best levels of the day as the risk-free rally continues. 10y down 7.2bps to 2.29% and MBS up 13 ticks (0.41)


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