How About Now (For A Ceiling in Rates) ?

Producer prices surged much higher than expected in this morning’s data, but bonds found a way to rally anyway.  Then a weaker 30yr bonds auction was more or less shrugged off at 1pm.  Bonds retained a bid for much of the day–so much so that analysts and talking heads are increasingly calling for a ceiling.  This has happened several times in the past few months, but is it time yet?  WAY too soon to know…  As discussed in today’s video, we could just be seeing holiday weekend position squaring.  Even then, most of the gains ended up evaporating by the close.

Econ Data / Events

Fed MBS Buying  10am, 11:30am, 1pm

Core Producer Price Index m/m …..1.0 vs 0.5 f’cast, 0.4 prev y/y …….9.2 vs 8.4 f’cast, 8.7 prev

Market Movement Recap

08:49 AM Initially weaker overnight with losses peaking in the opening hours of the European session.  10yr was as high as 2.79, but rallied heading into domestic hours, and held ground despite hotter PPI.  Now roughly unchanged at 2.73 with MBS up 1 tick (0.03). 

10:52 AM Additional gains before and after BOC announcement (not necessarily because of it).  We’re assuming we’re seeing some short-covering ahead of the holiday weekend in addition to bona fide bets on a ceiling among some traders.  Short end of the curve leading the way, but long end getting some love.  10yr down 6.6bps at 2.661.  UMBS 4.0 coupons are up nearly 3/8ths.

12:55 PM Slight give-back ahead of 30yr bond auction.  10yr still down 4.2bps and MBS still up just over a quarter point.

03:58 PM More of a give-back now, but still linear and uneventful in terms of volatility.  Selling is methodical and not looking tied to specific market movers.  10yr yield still down 1.7bps on the day, but up to 2.71 (well off 2.646 lows).  MBS up just over an eighth on the day, but down more than a quarter from highs.
Source: Mortgage News Daily