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Rate Rally More to Do With Fed or Flight to Safety?

Rate Rally More to Do With Fed or Flight to Safety? Bonds rallied fairly sharply to start the holiday-shortened week.  The most obvious source of motivation was a flight to safety driven by the Israel-Gaza conflict, but that explanation raises questions due to the stock market also improving (a true flight to safety would see stocks move lower). A slew of friendly Fed comments helps everything make sense.  The Fed increasingly sees the bond market doing more of the heavy lifting on creating tighter financial conditions, thus obviating additional Fed rate hikes.  One could even say that the attacks over the weekend suggest that the Fed err on the side of steady rates vs rising rates at the next meeting (thus providing a way to reconcile both of the competing market motivations).   Market Movement Recap 09:20 AM Much stronger overnight. 10yr down 11.9bp at 4.686.  MBS up just over half a point.  11:56 AM Sideways for the first 2 hours and now improving to the day’s best levels.  MBS up almost 3/4ths and 10yr yields down 18bps at 4.624. 02:21 PM Off the best levels.  MBS still up almost half a point.  10yr still down 15bps at 4.655.  04:17 PM Earlier weakness failed to materialize into serious selling.  MBS up almost 5/8ths.  10yr down 15.2bps at 4.653.

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