The only notable calendar entry today was Fed Chairman Powell’s testimony. He mostly stuck to the script, but covered some subjects in a little more detail (more details here). For example, he was very clear about the Fed’s high hopes for the upcoming labor market data. That means next week’s job report would be sluggish to pique the Fed’s interest in an early throttling. So the strong outlook is actually a spring in the upper bound of the bond market.

Economic data / events

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

  • Sale of existing homes 5.8 million vs. 5.72 million f’cast, 5.85 million

Summary of the market movement

09:06 am

Flat in Asia, stronger in Europe, then weaker towards the domestic times. Traders are a little cautious at the start of the auction cycle and before Powell’s afternoon speech. Currently roughly unchanged from being more than 3 basis points lower overnight (10 year return).

12:46 pm

Bonds found buyers shortly after the NYSE opened at 9:30 a.m., and gains accelerated when Williams from the Fed made some low-key comments at 10:30 a.m. 10 year yields are now down 2.5 basis points and UMBS 2.0 coupons are up nearly a quarter point.

3:41 pm

No punches from Powell and a fairly bond-friendly approach (i.e. by setting a month-long timeframe for the taper decision) add up to the profits. MBS is up more than a quarter point and the 10-year rate is now down more than 3 basis points.