Surprisingly Resilient as Range-Finding Expedition Continues

Bonds began the day in weaker territory but quickly began making their way back to ‘unchanged.’  Treasuries ultimately made it back into positive territory, and MBS were close enough.  This was a surprisingly strong showing given the bumpy 7yr Treasury auction and the ongoing uptick in oil prices (and the inflationary implications).  One of the only ways to make a case for the recovery is via the sharp selling seen in equities (S&P down 2%).  Weaker consumer confidence data is part of the same narrative (one in which traders are balancing the risks of recession against the Fed’s inflation fighting resolve).

Econ Data / Events

Case Shiller Home Prices 21.2 vs 21.0 f’cast, 21. prev FHFA Home Prices 18.8 vs 19.1 prev Consumer Confidence 98.7 vs 100.4 f’cast, 103.2 prev

Market Movement Recap

08:43 AM Higher oil/stocks overnight + European bond market weakness = moderate weakness in US bonds overnight.  10yr starting out 4bps higher at 3.243 and 4.5 UMBS down just over an eighth of a point.

01:12 PM Steady gains from the open, ultimately resulting in Treasuries turning green before the auction.  Brief pull-back post-auction and now green again with 10yr down 1.1bps at 3.19.  MBS down an eighth of a point, but there’s more than an eighth of a point of illiquidity distorting the true price.

03:54 PM Excruciatingly flat all day in MBS (minus a blip due to illiquidity after the auction) with losses of just under an eighth of a point.  10yr yields have been flat since slightly before the auction (roughly 1bp lower on the day).