MBS Day Ahead: Stronger Start, But Risk Remains With 10yr Auction and Corporate Bonds

Yesterday marked the weakest weekly opener in several months as bonds built on negative momentum following last week’s jobs report and positioned themselves defensively ahead of this week’s Treasury auction cycle.  A strong 3yr auction had essentially no effect on any portion of the yield curve, but today’s 10yr auction could be a different story.  Yields are several bps lower to start the day.  This raises the risk of a bigger negative reaction if the auction is weak (unless bonds undergo a concessionary sell-off in the hours leading up to the 1pm ET auction results).