US bond markets improved in the overnight session as European markets drove yields lower around 3am. US 10yr yields fell below 2.75% as a result, and that level acted as a floor for the rest of the session.
The first bounce took the form of a gradual push back in the other direction heading into domestic trading hours. But bonds stayed strong following an ‘as-expected’ Q4 GDP report (not necessarily because of it–after all, it’s extremely stale data at this point). Rates returned to the overnight floor just after the 9:30am NYSE open but were not willing to explore anything lower with stocks making a recovery and with the week’s last Treasury auction looming.
The 7yr auction was one of the worst of the past 2 years in terms of it’s statistics (bid-to-cover, gap between high yield and expected yield, indirect bid %, etc). But there’s a major caveat here: bonds rallied nicely yesterday (and this morning) to the lowest yields since early February AND there wasn’t much of a push back before today’s auction. In other words, traders were tasked with bidding on 7yr notes that looked very expensive compared to recent norms, and they simply bid accordingly.
Caveats aside, yields moved higher in response to the poor auction results. This further solidified the bounce from earlier in the day (just before the noon hour). On a positive note, it didn’t take yields up and over the important 2.80% technical level. As such, the door is open for true “confirmation” of a break below 2.80%, but I’ll feel better about making that call based on early April trading as opposed to the potential distortions of Spring Break trading at month-end on a holiday-shortened week.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
100-00 : -0-03
2.7825 : -0.0055
|Pricing as of 3/28/18 5:12PMEST|
Today’s Reprice Alerts and Updates
1:07PM : ALERT ISSUED: Awful 7yr Auction Putting Some Pressure on Bonds
10:06AM : Bonds Increasingly Interested in Stocks Today, For Better or Worse
MBS Live Chat Highlights
Brian Bockholdt : “Its s very good thing considering how tough 2.80 has been lately. Kind of shocked we didn’t fly right back over 2.80”
Bert Swyers : “I think its a good thing, I plan on locking everything by tomorrow”
Brian Bockholdt : “Surprised to be at 2.77 after that auction”
Jason Anker : “lets see where resistance is”
Eric Sayer : “let the Selling begin”
Matthew Graham : “D”
Matthew Graham : “RTRS – U.S. SELLS $29 BLN 7-YEAR NOTES AT HIGH YIELD 2.720 PCT, AWARDS 4.76 PCT OF BIDS AT HIGH”
Matthew Graham : “7yr auction preview: The when-issued yield (like the forecast) is trading around 2.705 currently, but it could change a bit by the auction time. Bid-to-cover has averaged 2.49x recently with a low of 2.36 and a high of 2.73. Indirect bidders have taken an average of 65.6% of 7yr auctions with a recent high of 78% and a low of 58%”
Matthew Graham : “The decoder ring for my next chat: Treasury Auction Jargon, Definition, and Significance “
Edgar : “Bring on the 2.80 test for the early close tomorrow, three day weekend and then to lower levels next week so MG can give us confirmation it’s ok to get on the float boat!”
Ted Rood : “I’m guessing current rate sheets are week’s best”