UMBS were in the green for once this morning.  Up 23 bps on the open.

In a departure from recent norms, the overnight session was somewhat constructive for bonds.  The gains weren’t massive, but they were notable for being something other than losses.  Volume and buying picked up around 8:45am ET despite an absence of economic releases or market moving headlines.  One could make a case from some spillover from European bonds and ECB comments, but the timing doesn’t line up very well.

All that having been said, we don’t have to have an obvious fundamental motivation for a few bps of improvement

Jerome Powell pulled the rug out under bond bulls yesterday by acknowledging that inflation is too high and hinting that rate cuts are not coming any time soon. Punch line: Stick a fork in the June rate cut bet. The Fed funds futures now see one rate cut this year.

“The labor market remains very strong” as the unemployment rate remains under 4% for the longest period in more than half a century, Federal Reserve Chair Jerome Powell said on Tuesday. Even with this strength the labor market has been moving into better balance.

However, recent data demonstrates a lack of progress on inflation heading toward the Fed’s 2% target

A couple of Fed speakers today, Meister and Bowman, likely to pile on Powell’s message from yesterday that the Fed has no reason to worry about a rate cut anytime in the near future.

Bonds enjoyed their best day in more than a month and a half on Wednesday, which can’t help but beg the question: why?  Days like today require a process of elimination and some guesswork.  We don’t have a big, obvious market mover in play in terms of economic data or headlines.  Moving down the list of usual suspects, any time bonds have been as consistently weak as they have been recently, we can talk about “dip buying” (as in traders buying the dip in prices) as well as short covering (traders buying bonds to cover previous bets on higher rates).

Additionally, we can consider the stock market in the midst of it’s biggest correction since last October and the possibility that some of that stock selling may be turning into bond buying.  Either way, the important consideration is that this is only one day and not necessarily a sign of anything new as much as it’s a byproduct of things that have already happened.

UMBS closed the day up 48 bps at 99.58