Bond Rally Hits Snag As Stocks Bounce

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Granted, it’s an on-again, off-again relationship between stock prices and rates, but it’s been “on” for the past few days.  Today was no exception.  Stocks were close enough to their recent, relative abyss that any further weakness would have broken key technical floors.  The resulting selling would have likely helped bonds continue to rally.

Instead, stocks bounced.  They didn’t bounce in grand fashion (i.e. there weren’t huge gains), but they were very clear about not moving any lower from yesterday’s 2pm ET levels.  That was basically it as far as the bond rally was concerned. Yields moved off their lows late yesterday and were jolted slightly higher by a weaker open in the European bond market.

Throughout the domestic session, there was a strong directional correlation between stocks and bonds.  In other words, they were almost always moving in the same direction, even if the magnitude varied.  In general, bonds sold-off steadily as long as stocks were holding steady (or better).  The selling brought 10yr yields close to the 2.79-2.80% technical level by the end of the day, but those ceilings remain intact for now.  The counterpoint is that the stock rally never really got extreme, so it remains to be seen how bonds would respond if stocks make it back above yesterday morning’s highs.


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

FNMA 3.5

100-02 : -0-05

Treasuries

10 YR

2.7844 : +0.0524

Pricing as of 4/3/18 4:17PMEST

Today’s Reprice Alerts and Updates

10:48AM  :  ALERT ISSUED: Bonds at Weakest Levels as Stocks Stabilize


MBS Live Chat Highlights

Matthew Graham  :  “based on that time frame, you’re pretty close with your 6-7bp drop. Typically, 100bps would be closer to a 10-11bps drop”

Matthew Graham  :  “last 2 months have been tricky in that regard because mortgage rates have been holding inside a much narrower range than 10yr yields”

Dustin McAlister  :  “I know it isn’t exact but what could I tell someone that a 100 basis point improvement on mortgage pricing would equal to a drop on the 10 year yield from today? 2.71? Based on pricing today, Jan 29th was about 100 BPS better and that’s what the yield was then. Sound logic or crazy?”

Hugh W. Page  :  “and it was rumored he was the pick over a week ago I think”

John Tassios  :  “agreed, he’s a known quantity”

Hugh W. Page  :  “No surprise there”

John Tassios  :  “Bloomber Radio: John Williams picked to lead NY FED.”




Original Source