Bonds Hitting Resistance Despite Weaker Econ Data; MBS Underperforming In General

Bonds Hitting Resistance Despite Weaker Econ Data; MBS Underperforming In General
Written by Publishing Team

MBS Live Morning: Bonds hit resistance despite weak economic data; Mohammed bin Salman’s performance is generally poor

Friday isn’t shaping up to be a great day for the mortgage market. Our favorite benchmark donor (10yr yield) is in the midst of a potential technical bounce at 1.70% after breaching 1.69 hours later yesterday. Yields were quickly corrected overnight and now bounced HARD at +1.70 this morning before heading to fresh highs for the session. There were no separate events to blame, but expectations of inflated consumer confidence aren’t helping.

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The chart may focus on the resistance levels underfoot, but we can easily take solace in 1.76% overhead. At the very least, we can continue to monitor 1.76% for support for the rest of the day, and maintain a bleak outlook for an upward breakout.

Meanwhile, Mohammed bin Salman continues to underperform Treasury bonds with the yield gap between the two at its widest in more than a year.

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For context, prior to the pandemic, the MBS outbreak spent nearly the past two decades at levels higher/weaker than what we currently see. This includes times when expectations for MBS Fed buying were stronger. The double takeaway is that a) the spreads are still very strong and b) it wouldn’t be worrisome to see an extra spread widening in 2022.

Today’s economic data has come and gone without any benefits. This is probably confusing since it was almost exclusively weaker (and supposedly weaker data is good for bonds). But to repeat our conversations earlier this week, what can economic data do in the near term to alter expectations for Fed policy tightening? These balls are in motion and it would take a lot more than just a few weaker econ data to change things up. This is doubly true when one of today’s data points included the highest consumer inflation forecast in over a decade.

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