As discussed the day before, the bond market is in the process of reassessing its assumptions about the yield curve following Wednesday’s Fed forecasts. The amount and timing of the rate hike is just a little more respectful, and previous trades that have bet on a steeper yield curve cover quickly. That means losses on 2-3 year bonds and gains at the longer end of the yield curve. Bottom line: longer-dated bonds are best. MBS don’t last as long as 10 year treasuries, so they don’t do as well. The end.

Summary of the market movement

8:52 am

Stronger overnight with 10 years of age, reviving yesterday’s lowest returns around 4 a.m. Weaker early in the domestic session (back to unchanged) on Bullard comments on CNBC.

11:04 am

A relatively wild morning with a big drop in MBS followed by an even bigger recovery. The TSY yield curve goes crazy with 2s in the toilet and 30s to the moon. See the Day ahead for more. There are no obvious catalysts for the 10 o’clock rally at the long end of the yield curve.

3:15 p.m.

Slowly grind to higher levels in the last 4 hours (just as easy to call MBS “sideways”). 2.5 coupons are up 2 ticks (0.06) on the day and 10-year yields are near their daily lows, down 6.8 basis points to 1.443%.