Late Day Volatility Surrounding Month-End and Corporate Issuance

The day got off to a slow start with bonds trading almost perfectly flat after losing ground modestly in the overnight hours.  Higher inflation and slightly stronger economic data in Europe contributed to the weakness.  Domestic traders sat on their hands until just before the 1pm CME close.  Some combination of corporate debt issuance and month-end positioning started the selling spree.  Headlines regarding upgraded Treasury borrowing estimates added it.  Then at 4pm, nearly the entire move was reversed.  Corporate rate lock hedge buybacks can’t be tracked, but may have contributed to the bounce as well as month-end tradeflows tied to NYSE-listed bond funds.

Econ Data / Events

Chicago PMI

45.2 vs 47.0 f’cast, 45.7 prev

Market Movement Recap

08:46 AM Modestly weaker in Asia and another bump at the EU open.  10yr up 3.5bps at 4.046.  MBS down about 3/8ths but still waiting for liquidity (i.e. losses might be a bit smaller).

01:27 PM Excruciatingly boring and sideways day.  MBS unchanged from the first update.  10yr up only 2.9bps now at 4.04.  Even stocks have been mostly flat.

02:55 PM Late day weakness heading into the 3pm CME close.  Volume suggests it could be related to corporate bond issuance.  Either way, 10yr now up 6.3bps at 4.073.  MBS are now down over half a point and off roughly a quarter point from the highs.

03:30 PM Additional weakness at the 3pm CME close after an upgrade of Treasury borrowing needs estimate.  Some bounce back since then, but MBS still down 5/8ths on the day and nearly 3/8ths from mid-day highs.
Source: Mortgage News Daily