MBS Live Morning: Standardization or Correction? Today’s Ten Years Auction might help with that answer
Yesterday’s flexible trading day strengthened the case of A corrective (or Monotheism?) after the huge rise in yield last week. Traders (especially experts in non-commercial markets) put a lot of stocks in this morning’s CPI data as having some kind of revealing quality. We got some questions about whether the 7.0% headline CPI figure will revive recent weakness. We’ve answered our own question: How will a hot CPI number make the Fed more aggressive than it already was last week?
While today’s ‘hottest’ numbers are debatable (relative to forecasts), so are traders ignore him Either way. Either that or traders were in a position to surprise the upside that should reinforce expectations of aggressive tightening from the Fed. To be fair, there is likely something to be said for this interpretation based on the response seen in volume and stock/bond correlations.
Specifically, revenue share and stock prices are strong inverse interconnected interest This is evident in the immediate aftermath of this morning’s data and for the whole week so far.
If the correlation is easier to understand and see, we can think of the exact same graph, but with 10 years expressed in price rather than yield.
With both stocks and bonds plotted in the form of a “price,” we can simply refer to both as “asset prices,” thus saying things like “asset prices are waning and dwindling in response to the changing expectations surrounding Fed policy normalization efforts.” In other words, the federal residence is a rising tide that lifts all boats. Prior to this week, there was a downturn that drained asset prices across the board. This is the classic pattern for stocks and bonds in times of heightened concern about future Fed policy moves.
From a bond standpoint, this week’s resilience is increasingly triggering a consolidation/correction situation after last week’s sell-off. What is the difference between reinforcement and correction? This is somewhat open to interpretation, but let’s say consolidation is the more tame and aside version – a way for the recent run in the market to catch its breath instead of initiating a new momentum movement in the opposite direction. A correction could mean a certain level of meaningful progress made in that opposite direction.
As of this morning, it’s easier to refer to this as a file merge If only we could choose one option. Things may change If the bonds have an enthusiastic response to the strong 10-year Treasury auction at 1pm – especially if it will break below the 1.70% technical level.
Download our mobile app to set up MBS Commentary alerts.