While MBS definitely did sell-off today, and while mortgage rates did indeed move higher, it was Treasuries that took the brunt of the damage.  Specifically, the longer-term Treasuries, like 10 and 30yr bonds were hit hard today with little other than the release of Trump's tax proposal to blame.

At the very least, the tax plan--which began to leak yesterday afternoon--put upward pressure on rates overnight. There are multiple reasons being offered for this reaction and none of them are overly compelling. After all, this is just square one for actual tax legislation. We're still very far from any actual changes, and those changes are certain to bear precious little resemblance to the "best-case scenario" offered up by the administration.

So why would rates react so much? That's a great question. A lot of market participants are a scratching their heads over the magnitude of today's Treasury sell-off.  A few media outlets astutely pointed out that the overreaction in bonds could have to do with the repatriation implications (because offshore money is widely held in dollar-denominated bonds), but no one addressed the elephant in that room: the bonds in question are largely shorter-term and today's sell-off was clearly centered on longer-term bonds.  

There's a positional story here as well (trading motivations related to the mix of trading positions in the marketplace).  We know traders had been stepping in to buy bonds again after the recent selling spree, and today could have been bond bulls' way of enduring a pain trade much like bond bears were forced to endure earlier in the month.  In other words, traders were too quick to bet on rates moving higher at the end of August and that imbalance of positions helped facilitate a domino effect for bond buying at the beginning of September.

Regardless of the underlying motivations, the technical impact (i.e. what the selling did to the numbers and charts on the screen) is negative.  Yields broke our overhead support level of 2.28% and have also pivoted higher from a few key moving averages (50 and 100 day bounces look ominous, for those that are into moving averages).  Bottom line, time to get back on defense until our team has possession again.