Winning Streak Finally Ends, But it Could Have Been Worse

Take yesterday out of the equation and today’s closing levels are better than any other day since early December.  That’s not a bad way to conclude 9 days in a row of bonds making intraday improvements. In the absence of data, traders took cues from equities and technicals. On the technical note, 10yr yields bounced at 4.11 right at the start of the overnight session and again in the 10am hour.  Yields retraced most of yesterday afternoon’s rally in concert with a stock market bounce.  Days like today become much more likely than not when bonds stretch winning streaks to 8 days or more. This could be a simple attempt to catch a breath, but the jury’s out until we see the rest of the week’s data and whether or not yields actually care about 4.11%. 

Market Movement Recap

09:59 AM Moderately stronger overnight and holding.  MBS up 1 tick (.03) and 10yr down 1.3bps at 4.142

12:26 PM weakest levels.  10yr up 2.2bps at 4.177 and MBS now unchanged 5.5 coupons and down almost an eighth in 5.0 coupons.  

03:18 PM Weakest levels of the day with MBS down 5 ticks (.16) and 10yr up 5.7bps at 4.213

While much of the recent improvement in the bond market can be tied to various economic reports, there’s been more than a normal amount of improvement due to “risk-off” trading. In other words, economic concerns led to general “sell stocks, buy bonds” vibes. After taking a quick break from the pity party on Friday, the stock market is back at it today. Bonds are once again getting some spillover, but we’re definitely starting to see some hesitation. Stocks are like the friend who wants to keep partying. Bonds are like the friend who has to work in the morning.

This isn’t phenomenon isn’t limited to the past 24 hours.  If we go back to the start of the risk-off episode, we can see bonds consistently take a more measured approach. A chart of yields vs stocks doesn’t show the disparity accurately, so the following chart shows the percent change in stock prices vs Treasury futures prices (a price vs price comparison in percent-change terms). 

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Bonds Start Week Off With a Bang

After a weaker overnight session, bonds bounced back swiftly after this morning’s ISM Manufacturing data. The headline was roughly as-expected, but sharply weaker employment and “new orders” outweighed the highest “prices paid” component in more than 2 years. It took less than 15 minutes for moderate losses to flip to moderate gains.  Very little happened after that apart from a slow and mostly steady trickle to even stronger levels. It bears repeating that the gains were centered on econ data as opposed to any other news. 

Econ Data / Events

ISM Manufacturing 

50.3 vs 50.5 f’cast, 50.9 prev

ISM Prices

62.4 vs 56.2 f’cast, 54.9 prev

ISM Employment

47.6 vs 50.1 f’cast, 50.3 prev

ISM New Orders

48.6 vs 54.6 f’cast, 55.1 prev

Market Movement Recap

10:09 AM Bouncing back to positive territory after ISM data.  MBS unchanged and 10yr down 2.1bps at 4.194

01:10 PM Stock losses spilling over to help bonds again.  10yr down 4.1bps at 4.174.  MBS up 2 ticks (.06).

03:22 PM Best levels of the day.  MBS up 3 ticks (.09) and 10yr down 5bps at 4.165

Treasury Secretary Scott Bessent expects the U.S. housing market to quickly pick up steam after recent indicators came in below forecasts.

Authors in two separate Urban Institute papers warn how headcount reductions at the entities could negatively impact borrowers, taxpayers and the housing market.