Bonds Retreat After Auction. Here Comes CPI

Bonds began the day in a surprisingly strong stance and it didn’t take too long to realize it was a bit too strong.  The first hint came in the overnight session when 10yr yields refused to keep chasing an EU bond rally below 2.90.  The morning commentary consequently pondered the possibility of 2.90 ending up as a resistance level for the day, and that’s exactly what happened (multiple bounces in the late AM hours).  After that, yields rose only modestly ahead of the 10yr auction before selling a bit more swiftly in its wake.  None of the above is worth too much reflection considering CPI is infinitely more capable of sparking volatility on Wednesday morning. 

Econ Data / Events

no significant economic events

Market Movement Recap

08:28 AM Modestly stronger at the start of the overnight session with additional gains at the start of European hours.  10yr down 5.6bps to 2.939 and MBS up almost an eighth of a point.

01:05 PM Very flat all morning and now losing ground after the 10yr Treasury auction.  Bonds are still positive on the day, but MBS only by 1 tick (0.03) and 10yr yields are now down only 3.5bps on the day.

03:41 PM MBS at weakest levels, down 1 tick in 4.5 coupons.  10yr is outperforming, still down 4.4bps on the day and ebbing from post-auction highs (blame the yield curve and the supply/demand issues surrounding the MBS roll for the MBS underperformance).