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Why Are Bonds Still Rallying?

Why Are Bonds Still Rallying? Bonds have seen only a few examples of a solid 2-day rally over the past few months.  While the present example is the largest in terms of the ground covered, it also began from the highest starting point and from the most sharply oversold technical levels.  That’s the backdrop for a discussion on why bonds are still rallying.  The brushstrokes involve geopolitical turmoil, global economic uncertainty, and an increasingly unanimous opinion among Fed speakers regarding a shift in the rate outlook and in the economy itself.  All of the above was enough for the bond market to largely ignore hotter PPI data this morning and a softer 10yr Treasury auction this afternoon.  We suspect Thursday’s CPI will get more attention if it’s very far off the median forecast.  Econ Data / Events Core PPI m/m 0.3 vs 0.3 f’cast, 0.2 prev Core PPI y/y 2.7 vs 2.3 f’cast, 2.2 prev Headline PPI m/m 0.5 vs 0.3 f’cast, 0.7 prev Market Movement Recap 09:05 AM Stronger overnight. Briefly weaker after data, but selling is over.  10yr down 7.4bps at 4.583.  MBS up just over an eighth of a point.  12:22 PM Additional gains heading into PM hours.  10yr down 7.8 bps at 4.579.  MBS up just over a quarter point.  01:10 PM Some selling after auction.  10yr still down 4.1bps at 4.616.  MBS still up 5 ticks (.16), but down more than an eighth from highs. 02:19 PM Effectively no reaction to Fed minutes.  10yr down 5.1bps at 4.606.  MBS up an eighth.  04:42 PM Best levels of the day after hours.  10yr down 9.5bps at 4.562.  MBS up 3/8ths.

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