MBS Day Ahead: Keeping an Eye on Corrective Trend as Auction Cycle Begins

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Posted To: MBS Commentary

In the day just passed, bonds began the week with a resolute sell-off that broke through an important overhead ceiling in 10yr yields (1.62). Weakness was present from the start of the European session through the end of the domestic session with 3 distinct phases (EU open, US open, EU close). This suggests initial limited weakness in Europe that was subsequently pulled higher by US traders after 8am ET. After Europe closed, Treasuries were more free to do what they wanted to do: sell more! In the day ahead, we'll be watching bonds closely for signs of additional momentum toward higher yields. There's never any way to tell whether we're looking at a correction that only lasts 3 days or merely the "first 3 days" of a much more substantial correction. Fairly convincing arguments…(read more)

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