UMBS down 19 bps to start the week. Stock and bond markets steadied after last week’s blockbuster rally, with traders still optimistic that US and European central banks may start cutting interest rates as soon as next year.
US futures added about 0.1%, with Tesla Inc. gaining in premarket trading after Reuters reported the company would produce a new, more affordable electric car model in Germany. Global stocks have been finding firmer footing after recent US data pointed to a cooling economy, leading traders to price lower rates by June. Ten-year Treasury yields, the benchmark rate for the global cost of capital, edged higher Monday, having slid in recent weeks from the 16-year highs touched last month. A better-than-expected US earnings season and the peak in interest rates may be pointing towards a year-end rally
Supposedly macro hedge funds were heavily short Treasuries last week, and that trade blew up spectacularly. This begs the question whether last week’s rally was just a technical even that will be erased or the end of the Treasury bear market for this cycle. The jobs report shows the employment market is catching up to all of the other data points like the ISM, consumer confidence, etc.
Home sellers are cutting their prices in order to move the merchandise, according to the latest from Redfin. Nearly 7% of for-sale homes registered a price drop in October, a record.
Bonds Feeling Defensive Ahead of Auctions?
The title of today’s recap gets a question mark because it’s fairly impossible to conclusively tie today’s market movement to measurable motivations. In other words, we don’t have any economic reports or stand-out news headlines that coincide with a bigger push of volume and volatility. Instead, domestic traders simply started selling first thing in the morning and backed off quickly after the first few hours. The rest of the day (essentially 10am through the close) was spent drifting sideways. If we want to jump to a fairly safe conclusion, it would be hard to disprove the notion that bond traders are feeling somewhat apprehensive about this week’s Treasury auction cycle.
UMBS ended the day down 34 bps – at 100.50.