It's been a strange week for domestic bond markets so far. Just 2 short days ago, bonds were rallying with a seeming disregard for negative cues from related markets and data. Now, as of yesterday, the opposite is true as sellers are clearly in control despite what would normally be positive external cues (lower stocks, stable European bond markets, and yesterday's horrible econ data).
While this morning's Jobless Claims data was slightly stronger than expected, it was already made clear yesterday that bonds aren't trading data at the moment. Claims data was no exception as there was no detectable trading reaction in the first 10 minutes. Bond traders simply don't sit on their hands and "think it over" for that long. 10 seconds would be a long time. 10 minutes is out of the question.
So we're left with yet another vote for a 'tradeflow-driven' sell-off. This refers to market participants making trading decisions based on how other market participants are trading. For example, a big seller might motivate other sellers. We've had a few today. Most notably, the day's selling began in earnest after a very large 5yr futures seller dumped shares around 6:30am.
Negative tradeflow pressure can even be as simple as an absence of buyers. In this case, that's very much a factor, and it's one of the reasons we discussed the need for 'confirmation' after breaking through the 1.90 technical floor on Tuesday. Those sorts of breaks can either be the first step toward additional gains or the final cue for sellers to step back in and bet on a bounce. In turn, this quickly saps buying demand as the initially small rise in rates forces buyers to book profits and look for a new entry point.
We can only hope that each new plateau will turn out to be that re-entry point. The recent movement suggests not getting our hopes up though. Plateaus over the past 2 days have quickly given way to more selling. The trading activity that follows this afternoon's 7yr auction will probably offer the clearest picture of how the momentum is progressing. I'm not as interested in the auction result itself as I am in the week's cycle simply being over. This will let us know how much anxiety that had been causing. Hopefully it was "a lot."
MBS | FNMA 3.0 101-30 : -0-06 | FNMA 3.5 104-24 : -0-05 | FNMA 4.0 106-21 : -0-03 |
Treasuries | 2 YR 0.6180 : +0.0120 | 10 YR 1.9750 : +0.0480 | 30 YR 2.5640 : +0.0570 |
Pricing as of 3/26/15 11:59AMEST |