MBS Pricing Snapshot

After last week's major selling spree for bond markets, Asian and European trading sessions offered few reasons to be hopeful or pessimistic about the day ahead. 10yr yields moved down as low as 1.881 during Asian hours (less than a 2bp move from Friday's latest levels) before bouncing back to 1.912 when Europe entered the fray. A choppy sideways range persisted through the first hour of domestic trading, and though 10's opened in the green, the yield lows from overnight have continued to creep higher while highs have been more of a horizontal trend near 1.91. All of the above translated to MBS opening up a few ticks higher, moving into the red a tick, and now back unchanged at 104-06.

The first takeaway from the activity so far is that the market is delivering on our suspicion that tradeflows will be the focus in the absence of meaningful data and other scheduled movers (discussed in more detail here). The second conclusion is that those tradeflows have yet to suggest that the market is eager to buy the sell-off back to stronger levels, but neither is it eager to snowball to weaker levels. Somewhat ironically, before initiating their own larger directional tradeflows, traders are waiting for other traders to initiate their larger directional tradeflows. That seems like a tense situation, no?

Things could still go either way this morning. Stocks are currently opening up a few points weaker and futures were already falling into the cash open as well. There's perhaps been a slightly detectable correlation in bond markets (in that yields ticked microscopically lower on the weak stock open), but the morning has been more readily characterized by a disconnection of the stock lever. This is probably due to horse-trading on ECB rate-cut expectations, where a think tank report is circulating suggesting "no cut"--something that stocks wouldn't much like but that also doesn't apply any downward pressure to Treasury yields.