Bonds Selling Off Like it Was Always The Plan

Very little transpired during Wednesday’s trading session to change the outlook in the morning commentary.  With the volatility associated with Monday’s market shock out of the way, this week increasingly looks like the kind of token bond market correction/consolidation that frequently plays out on a relatively data-free week that follows a strong rally and that precedes a significant event (i.e. next week’s CPI).  This correction might have been more obvious at the start of the week had it not been for the global market shock associated with the Yen carry trade unwind.  As of today, it’s progressed far enough that we can begin to ask if we’ve seen enough for things to calm down.

Econ Data / Events

ISM Services

51.4 vs 51.0 f’cast, 48.8 prev

ISM Biz Acitivity

54.5 vs 49.6 prev

ISM Prices

57.0 vs 55.8 f’cast, 56.3 prev

Market Movement Recap

08:36 AM Moderately weaker overnight but MBS recovering to unchanged levels.  10yr still up 3.5bps at 3.927

12:20 PM A bit of weakness before the noon hour, but roughly in lines with previous levels in MBS, down 1 tick (0.03).  10yr up 4.8bps at 3.942.

01:15 PM Weaker after 10yr auction.  MBS down 3 ticks (.09).  10yr up 7bps at 3.96.

02:44 PM Weakest levels of the day now with 10yr up 7.5bps at 3.968.  MBS down an eighth.