MBS Continue to Outperform, Sorta

Despite a nice little rally from weaker opening levels to stronger closing levels, it was a strikingly uneventful and uninteresting day for the bond market.  Yields continued to operate in the same old range with 15 of the past 17 days trading inside the range set on NFP Friday.  One of the only ways to concoct an interesting narrative would be to call attention to MBS outperformance (5.5 coupons were a bit stronger on the day while 10yr yields were a bit weaker). We could simply say "Treasury auction cycle" and be done with it, but that's an oversimplification.  Besides, MBS don't always outperform on auction weeks.  The more accurate observation is that the short end of the Treasury yield curve outperformed the long end, and MBS have more in common with the short end these days.  In other words, it wasn't really outperformance by the time we compare MBS with the more appropriate benchmarks.