Since mid-day on Monday, domestic bond markets hadn't done much at all. Despite a slightly expanding range, the momentum was sideways as both higher highs and lower lows were being made. It wasn't until today that yields finally took a significant step outside that mostly-sideways range. Unfortunately, it was a step in the wrong direction.
The easiest place to point fingers is at the 30yr Bond auction. Objectively speaking, that's not a bad way to go, considering the mostly-sideways range was still "mostly intact" until then. It may well have been the case that a stronger auction would have kept it intact. Instead, the auction was exceptionally weak, even though bonds had already weakened in the run up to it.
Auctions give investors a chance to see where other investors stand in a slightly clearer light than normal everyday trading. Today, traders saw that wasn't much willingness to buy longer-dated Treasuries even after the morning's concession made yields more attractive. A relatively high level of uncertainty as to the next inspiration for bond markets combined with the ongoing liquidity problems made for a swift reaction to the auction data. While the weakness quickly found support and managed to hold it for the rest of the day, it was a full 7bps higher in 30yr bonds, 6bps higher in 10yr yields, and ultimately translated to 6/32nds of price weakness in MBS.
MBS | FNMA 3.0 102-09 : -0-06 | FNMA 3.5 105-01 : -0-05 | FNMA 4.0 106-26 : -0-03 |
Treasuries | 2 YR 0.5520 : +0.0160 | 10 YR 1.9650 : +0.0590 | 30 YR 2.6000 : +0.0700 |
Pricing as of 4/9/15 4:58PMEST |