MBS Day Ahead: Auction Cycle Ends; Bonds Still Have a Shot


Posted To: MBS Commentary

Tuesday of this week was a bit alarming for bond markets as it introduced the possibility that yields were opting for upward momentum after bottoming out amid last week's political drama. If we'd seen additional weakness yesterday, the case might have been closed on the momentum reversal (i.e. a shift back toward a trend higher in yields). Instead, the combination of a strong 5yr auction and friendly Fed minutes helped bonds find their footing. Whatever happens in the last day and a half of this week is likely of little consequence now that we've seen that bounce. There are two reasons for this. First , any additional weakness would have to carry 10yr yields over 2.305 in order to fundamentally alter the bigger picture–namely that yields have generally broken below 2.305 after…(read more)

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