Modestly Stronger Ahead of Fed Day

Without any market moving econ data on Tuesday, bonds finally managed to find a bid.  Or at least that’s how it seemed during domestic hours.  When considering the overnight session, we actually saw yields hit their lows of the day before the open, sell-off a bit at 8:20-8:40am surrounding a weekly employment update from ADP, and then return to the best levels mid-day.  The 7yr auction was slightly weaker, but bonds didn’t mind (perhaps just relieved to have supply in the rearview). With tomorrow’s Fed cut a 100% certainty, volatility potential depends on Powell’s press conference as well as whether or not the Fed makes any sort of announcement to end quantitative tightening (something that has been increasingly speculated by trade desks).  The QT news wouldn’t be as big as it sounds, but it might help a bit (or hurt a bit if it’s not announced).

Econ Data / Events

Case Shiller Home Prices-20 y/y (Aug)

1.6% vs 1.9% f’cast, 1.8% prev

CaseShiller 20 mm nsa (Aug)

-0.6% vs — f’cast, -0.3% prev

FHFA Home Price Index m/m (Aug)

0.4% vs 0.1% f’cast, -0.1% prev

FHFA Home Prices y/y (Aug)

2.3% vs — f’cast, 2.3% prev

CB Consumer Confidence (Oct)

94.6 vs 93.2 f’cast, 94.2 prev
Labor differential: 9.40 vs 7.80 prev

Market Movement Recap

10:38 AM 2 way volatility early.  MBS back to unchanged.  10yr still weaker, up 1.8bps at 3.993

12:52 PM MBS up 1 tick (.03) and 10yr up just under 1bp at 3.983

02:11 PM minimal reaction to 7yr auction.  It was slightly weaker than expected, but yields are a hair lower since before the auction.  10yr up 0.6bps at 3.98 and MBS still up 1 tick (.03). 

04:19 PM Heading out at the best levels of the day with MBS up an eighth and 10yr down 0.2bps at 3.973