Whatever Happened to Bonds Being Data Dependent?

Bonds began the day in stronger territory and remained stronger through mid-day despite AM volatility.  Some of the volatility was driven by economic data with S&P Global Services PMI coming in higher than expected.  Most of the day’s movement, however, was driven by “something else,” and something else pushed longer term yields higher while allowing short term yields to remain lower.  How do we reconcile that in this era where “data dependence” is so often repeated as the bond market’s prime directive?  First off, while today’s volatility was unpleasant in the afternoon, it was very small in the bigger picture.  It was also not so much about bond market weakness as it was about the yield curve normalizing.  This is not a phenomenon that will always need to play out at the expense of the 10yr and MBS.  That’s just the way it played out today.

Econ Data / Events

Wholesale Inventories

0.2 vs 0.5 f’cast, 0.6 prev

S&P Services PMI

56 vs 55 f’cast, 55.3 prev

S&P Manufacturing PMI

49.5 vs 51.7 f’cast, 51.6 prev

Market Movement Recap

11:00 AM Slightly stronger overnight, volatile after PMI data, but still in the green.  MBS up an eighth.  10yr down 4bps at 4.211.

01:03 PM some weakness before and after 5yr auction.  10yr down 1.4bps at 4.238.  MBS up 2 ticks (.06)

02:02 PM More weakness now.  10yr up 2.2bps at 4.273. MBS back to unchanged levels, down 6 ticks (.19) from highs.

03:56 PM MBS at weakest levels, down an eighth on the day and more than a quarter point from the highs.  10yr up 3bps at 4.281.