What happened yesterday?
Mortgage backed securities (MBS) lost -49 basis points from Wednesday's close which caused 30 year fixed rates to move upward. MBS have now lost a big -135BPS from Monday's open to yesterday's close.
Once again, we started the day selling off before our first dose of economic data even hit due to the German Bund (there version of our U.S. Treasury 10 Year note) saw their yields shoot up on continued optimism for growth in Germany and in Europe. This zapped money out of U.S. bonds which caused MBS pricing to rise.
Then, Initial Jobless Claims were much better than expected (320K vs estimates of 335K) and hit a 6 year low. This is the type of data that traders think will cause the Fed to taper in September which of course pressured MBS further.
Both Headline and Core CPI matched market expectations and didn't impact MBS pricing. Industrial Production and Capacity Utilization both were a little weaker than expected but not by enough to reverse the course of the morning's sell off. The Home Builder's Index was much stronger than expected (59 vs est 56)
Both stocks (DOW -225) and MBS (-49BPS) had a bad day. Remember when you could count on these moving in opposite directions? They actually have been moving in the same direction more often than not since April. This tells us that these markets are not as tethered as they once were and in many cases operate independently of each other.
The stock market was under pressure due to earnings reports from CISCO and Walmart. The bond market was down due to strength in Europe, a better than expected Initial Weekly Jobless Claims report - which in turn led to great speculation about the Fed tapering in September.