As the week progresses, a potentially frightening shift to a steeper upward trend in interest rates seems to have been averted for the time being. Today’s trading was a little weaker, but yields stayed at the same level as yesterday’s highs. The 30 year bond auction closed with minimal reaction and the same goes for the amazingly high PPI number this morning (core y / y at 6.2 vs 5.6 f’cast). The bottom line is that after a strong NFP the previous week, the bond market is digesting a huge amount of new supply (in terms of both government and corporate bonds), the Fed increasingly discussed earlier tapering prospects, and 10-year yields only rose 1.36% (from Thursday at least). The reservation “for the time being” still applies. This type of flattening has occurred in the past, followed by other weaknesses. In the current case, these risks depend heavily on how the pandemic progresses up to the Fed’s Jackson Hole Symposium at the end of the month.

  • Fed MBS purchases 10 a.m., 11:30 a.m., 1 p.m.

  • Unemployment claims 375k vs 375k f’cast, 387k prev

  • Core PPI y / y 6.2 vs 5.6 f’cast, 5.6 before

09:13 am

Apartment in Asia. Slightly weaker in Europe, but likely with the help of early US traders. 2bps higher on 10-year yields through 8:00 a.m. and another 1bp after economic data at 8:30 a.m. Weakness exaggerated due to bias from yesterday’s auction (5 and 30 year TSYs less than 1 basis point). UMBS 2.0 has now only dropped 1 tick (0.03).

1:08 pm

The flat day continues for the time being as all trading took place in the same range as the day afternoon for MBS (or day morning for Treasuries). The auction was weak, but not enough to cause panic. 10 years up 3.2 basis points to 1.367. MBS just a hair down.