First thing's first, any conversation about rates in a mortgage market context would be incomplete without considering this week's regulatory drama.  Specifically, FHFA just more than DOUBLED G-fees for refinances.  Read all about it in the mega recap HERE.  This surprise move threw lenders for a loop and most of them pulled pricing back significantly for obvious reasons.  In other words, there was/is a disconnect between MBS movement and rate sheet changes and it could persist for another few days depending on the lender.

Nonetheless, I'd generally expect that most of the disconnected movement between markets and rates would have happened yesterday.  If the broader bond market is able to find a supportive ceiling for rates, the mortgage market should benefit from that as well.

So is the broader bond market going to find a supportive ceiling?  If you'd asked yesterday morning, the answer would have been "maybe" or even "probably pretty soon!"  But any time after 1pm and the magic 8-ball was much cloudier if not outright pessimistic.  The 30yr bond auction caused yields to spike up to the highest levels since late June, thus making for a steadier continuation of negative momentum (as opposed to negative momentum that looked like it might be fizzling out).

We've seen a somewhat similar turn of events recently.  In early June, bonds experienced 3 days of heavy selling.  Throughout those 3 days prices tried to stage various comebacks before ultimately blowing out to the lowest levels in a few months (or highest levels in terms of 10yr yields).  Same story today.  Will we see a similar turn of events?

The rightmost green candlestick is today's trading so far.  In the bigger picture, simply being able to consider a ceiling bounce here means that bonds are doing exceptionally well.  A month ago, we wouldn't have been surprised to see another move back up into the 0.9+ range, and 0.74% looked like a ceiling that ran a high risk of being revisited.    The fact that we're only barely getting back up to .74% after 3 days of heavy selling speaks volumes to the underlying demand for bonds.

It's never safe to assume we know what the future will look like for bonds.  What we can say is that this week has actually been a pleasant surprise as far as technical corrections from all-time low yields goes (not counting March 9th).  Is there a possibility that the pain subsides from here?  Yes, but my point is that even if yields go a bit higher, we'd still be in good shape in the bigger picture.  Things only look as bad as they do if we compare them to the last few weeks which, in my mind, were surprisingly strong.