- MBS and Treasuries both relatively flat on the day; light volume too
- Boston Fed's Rosengren struck a hawkish tone (headwind #1)
- Corporate bond issuance was active (headwind #2)
- Neither headwind did lasting damage to bond markets, but the Rosengren effect was noticeable
The day presented some headwinds for bond markets, with corporate bonds being issued at a healthy pace. As a reminder, corporate debt creates additional supply in the bond market, competing with other bonds (like MBS and Treasuries). That competition can weigh on prices, as can some of the corporate bond hedging strategies that rely on selling Treasuries.
Against that backdrop, bonds had a hard time making it very far into positive territory, but they held their ground with aplomb. In addition to the general weight of corporate issuance, there were specific hurdles as well. Boston Federal Reserve President Eric Rosengren came out swinging today--at least relative to his typical bond-friendly tone. Rosengren has been a consistently dovish pragmatist on the FOMC, so when his tone shifts, it's worth taking note.
Back in February, Rosengren expressed concerns over a lack of inflationary pressures led by low oil prices and said there was little need to raise rates if global economic weakness was hurting the US economy. It's a thesis that's largely in line with the average 'dove' at the Fed, including the speech given by Yellen last week.
Today's Rosengren struck a different tone, saying that rate hikes would likely be appropriate before the market currently expects. Citing lessened risks from global market shocks, he said the expectation for only one or two rate hikes in 2016 is surprising.
The comments came during a time of day where bonds were already weakening a bit after hitting their best levels. The weakness got a noticeable push from Rosengren, carrying both MBS and Treasuries to their weakest levels of the day. Fortunately, those levels weren't too far from Friday's levels (and they were well within Friday's range). The bounce back was swift, and--at least for Treasuries--fully erased the losses.
MBS | FNMA 3.0 102-21 : +0-01 | ||
Treasuries | 10 YR 1.7620 : -0.0290 | ||
Pricing as of 4/4/16 7:00PMEST |