Two trends seems to entrenched themselves right now.
- Yields are rising. In the last 15 sessions, the largest rally in the 10-year has been 1.4 bps and only 5 days where the rate fell vs. 10 days where rates rose. Two of those "rally" days involved less than 1/2 bps move. This kind of slow leak higher is indicative of a buyer strike. Fast money pushed rates lower immediately after the 2/27 stock market mini-crash. But there has been no support from real money buyers.
- Corporate spreads are widening. Even a big rally in the stock market yesterday couldn't spark a generalized bid for corporates. Dealers are feeling around for the right level on many issues, and as a result, bid/ask spreads are wider. Most investment managers have expected wider corporate spreads eventually since 2005. So for the moment, they are content to sit on the sidelines and pat themselves on the back for making the right call. If it takes you 2 years to be right, are you really right? Regardless, I see corporate spreads leaking out further, but on the first sign of a sustained rally, PM's who are short are going to rush in and spreads will move tighter quickly.
The strategy I'm employing is to be short duration slightly, long MBS, neutral on corporates with a bias towards higher quality names.