Friendly Reversal Thanks to 7yr Treasury Auction
The day started like any other in recent months, with bonds showing an increase in yield for reasons that went beyond the usual economic indicators or news stories. The Christmas holiday week tends to bring about unpredictability in market direction due to low trading volume and liquidity. However, today proved to be different, as a robust 7-year Treasury auction led to a favorable imbalance between buyers and sellers. This imbalance was amplified by the light trading volume, resulting in one of the most significant reactions to a 7-year Treasury auction seen in years. While the bar wasn’t set high, the impact was noteworthy, with 10-year yields moving by 4 basis points and shifting from weaker to stronger territory throughout the day.
Moderate Weakening Followed by Recovery
In the early hours of the day, bonds experienced some weakness, remaining relatively stable after the release of key data. Mortgage-backed securities (MBS) were down by 6 ticks (.19), while the 10-year Treasury yield increased by 4.9 basis points to 4.634. However, by mid-morning, the market showed signs of recovery, with MBS down by only 1 tick and the 10-year yield up by 2.6 basis points at 4.611.
Strong 7-Year Auction Boosts Market
The turning point of the day came after a robust 7-year Treasury auction, causing MBS to rise by 1 tick, while the 10-year yield increased by just half a basis point to 4.59. This positive momentum continued into the afternoon, with MBS climbing by an eighth and the 10-year yield dropping by nearly 1 basis point to 4.578, holding near its best levels for the day.
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