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  • GDP +4.0 Percent. Bond Markets Sharply Weaker, but Holding For Now    MND Micro News  - 20 mins ago
    • Q2 GDP +4.0 vs +3.0 forecast
    • Q1 revised to -2.1 from -2.9
    • Consumer Spending +2.5 vs +1.2 previously
    • Business Inventory Change +$93.4 bln, adds 1.66% to GDP, biggest contribution since Q4 2011

    Naturally, bond markets are much weaker on the strong data.  10yr yields rose a quick 4bps to 2.50+ and MBS fell 8 ticks to 102-08 (Fannie 3.5s).  For now, however, that's as far as the selling has gotten, and there's a fighting chance that we bounce here.  Time will tell.  

    4.0 vs 3.0 may seem like a big beat, but to reiterate something in this morning's Day Ahead, that 3.0 was potentially artificially lower than it otherwise would have been.  Here's the relevant part:

    "This is a classic case study in market psychology!  Human psychology even!  You've perhaps heard of "the bump" when it comes to sales negotiations.  This is no different.  The ridiculously low print for Q1 has market participants broadly convinced that today will be worse than they otherwise would predict."

    In fact, the range of forecasts went as high as 5.2%!  4.0 may well have been closer to objective reality, had forecasters not been so scarred by the -2.9 in Q1 (now revised to -2.1).

    While the selling pressure is minimal so far, it sets us up for a bit of an uphill battle over the next 2 days.  The burden of proof now falls to the bond bulls, and we'd need a friendly FOMC Statement this afternoon (that would be one that doesn't say anything new, basically), and a 'miss' on Friday's payrolls numbers.

  • Bond Markets Bounce Back Toward Unchanged After ADP; GDP Coming Up    MND Micro News  - 40 mins ago

    The overnight session was largely uneventful as European bond markets essentially took the day off from volatility.  Instead, German Bunds moved gently higher from the technical resistance created by yesterday's all time low yields.

    Treasuries moved higher at a slightly quicker pace, possibly with some anxiety over today's heavy economic calendar.  The first relief of the day was in with ADP Employment missing to the tune of 218k vs 230k forecast.  By the time you read this, GDP will be out, and we'll be on to the next move.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - 17 hrs, 20 mins ago
  • Bond Markets Holding in Better Territory After 5yr Auction    MND Micro News  - 17 hrs, 20 mins ago

    In the hour and a half since the strong 5yr Treasury auction, bond markets have done a good job of bouncing back and holding gains.  The initial improvement was fairly quick, and leveled off within the first 30 minutes--forming a narrow little consolidative range.

    Only in the past few minutes have MBS and Treasuries moved out of that range and into stronger territory.  We had a few non-sequitur negative reprices even after the bounce back, but that seems less likely now.  If anything, positive reprices are more likely.

    Fannie 3.5s are currently up 5 ticks at 102-16 and 10yr yields are down 2.9bps at 2.462.

  • Consumer Confidence MUCH Stronger Than Expected, adding to Bond Market Pull-Back    MND Micro News  - 17 hrs, 20 mins ago

    The day's only significant econ data--Consumer Confidence--was much stronger than expected.  It took bond markets a few minutes to commit to a reaction, but when the did, it was understandably weaker.  The major caveat to the weakness is that US bond markets are also taking cues from European trading and domestic equities in addition to the Confidence numbers.  In general, it seems like EU trading is keeping a lid on US bond market weakness.

    Fannie 3.5s are down to 102-14 from 102-18 highs earlier this morning and 10yr yields moved up from 2.46 to 2.476 after the data.  As of now, we're still seeing both MBS and Treasuries poke and prod at slightly weaker levels.  In other words, there's no discernible "bounce" yet (but we may be working on one now, hopefully).  If we continue losing ground at this pace, negative reprices could become possible shortly.

    Here's the run-down on the Confidence data:

    • July Consumer Confidence 90.9 vs 85.3 forecast
    • June revised to 86.4 from 85.2
    • Present Situation 88.3 vs 86.3 last month
    • Expectations Index 92.7 vs 86.4 previously
    • "jobs-hard-to-get" 30.7 vs 30.7 previously
    • overall confidence headline is highest since Oct 2007

  • Bond Markets Surge as Domestic Session Begins, Here's Why...    MND Micro News  - 17 hrs, 20 mins ago

    If there's a kind of storm that's not quite perfect, but still pretty darn good, this morning's confluence of events is getting there.  Here are the ingredients

    1. European debt rally (a big one).  German Bunds moved into new all-time lows overnight and went on another push lower as the US session began.  This coincided with #2.

    2. Month-End buying.  With certain investors needing to buy a certain amount of Treasuries/MBS before the end of the month and with prices moving quickly higher this morning, we're seeing what can only be some month-end buying.  For more on that, read this: 'Month-End Buying,' And Its Effect on Bond Markets.
    3. Short-Covering.  Short covering happens when traders who were betting on rates moving higher, are forced to buy bonds as yields move lower in order to prevent further losses.  So with #1 and #2 making for an extra push toward lower yields, short-covering merely acts as an accelerant.

    If one of these three things is doing the most to motivate the US bond market rally, it's the European debt rally.  By that same rationale, when it changes course, that's when our rally this morning stands the greatest chance of bouncing or leveling off.  Ultimately, we're not breaking into any new ground today with respect to the recently low/narrow rate range.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Jul 28 2014, 1:59 PM
  • Bond Markets Slightly Weaker Overnight; Holding Ground in Domestic Session    MND Micro News  - Mon, Jul 28 2014, 9:18 AM

    It's been a slow start to the week with very little movement so far in the domestic session.  Before that, Treasury yields moved slightly higher in the overnight session.

    Reasons for the weakness include a general decrease in the level of geopolitical anxiety as well as a simple technical bounce foreshadowed by 10yr yields inability to get below 2.466 on Friday afternoon.  All bond markets have really done is pull back just slightly from there.

    That made for a few ticks of weakness for MBS at the open.  Since then, Fannie 3.5s have moved up from 102-09 to 102-11.  There haven't been any major market-moving headlines or instances of scheduled data.

  • Slumping Stocks, Weak EU Close Boost Bonds; Positive Reprice Potential    MND Micro News  - Fri, Jul 25 2014, 1:36 PM

    MBS Are at their best levels of the day, just over yesterday's highs.  Fannie 3.5s are a quarter of a point higher at 102-12.  While a quarter of a point is a solid improvement day-over-day, it's only an eighth of a point higher than most lenders' rate sheet print times, meaning we're just now getting to the leading edge of positive reprice potential. 

    10yr yields have moved 4.4bps lower to 2.466 and the S&P is down over 10 points.  The improvement in Treasuries is fairly uninteresting considering yesterday's weakness was fairly pronounced.  In short, it simply puts us right back in the holding-zone that had been intact since last Thursday. 

    A break below 2.44 would be a different story (in that it would be more interesting).  As it stands, we're still waiting for next week's big-ticket events to cast a vote on whether we break lower (i.e. move through to 2.3's) or bounce back up, effectively remaining in 2014's established range.  That said, the waiting is much more comfortable today than it was yesterday.

  • Bond Markets back into Positive Territory After Durable Goods Paradox    MND Micro News  - Fri, Jul 25 2014, 9:09 AM

    Believe it or not, this isn't the first appearance of the exact same "paradox" headline.  That's because The Durable Goods report has some significant components beyond the headline and because of its implication on GDP.  This time around, the culprit is the same as it was in March (last time that headline appeared): Nondefense Capital Goods Orders Excluding Aircraft. 

    While the current report came in at +1.4 vs a forecast of +0.5 (a 0.9 beat), the last report was revised from +0.7 to -1.2 (a 1.9 decrease).  Economists/Analysts/Trader teams will have already baked in their forecasts to next week's GDP expectations, but can't bake in revisions until their known. 

    As such, today's Durables data leaves a net loss of 1.0 in that 'Nodefense Ex-Air' segment, which is a fairly substantial negative mark against next week's Q2 GDP.  And that's why bond markets improved despite the stronger headline ("headline" refers to overall Durable Goods at +0.7 vs +0.5 forecast).

    Before that, both Treasuries and MBS were in moderately weaker territory.  Fannie 3.5s are now up 3 ticks at 102-07 and 10yr yields are down 1.6bps at 2.493.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Thu, Jul 24 2014, 3:35 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Thu, Jul 24 2014, 10:49 AM
  • Horrid New Home Sales Data Prompts Only a Modest Bounce    MND Micro News  - Thu, Jul 24 2014, 10:20 AM

    On several occasions in the past, we've seen pronounced reactions to big beats/misses in New Home Sales data.  Today's miss is every bit as big as past 'big misses' (the ones that resulted in big moves), yet we're not seeing much of a response.  Fannie 3.5s have only recovered 2 ticks and 10yr yields are only down to 2.5052 from 2.518. 

    Does this suggest a stronger inherent bias back toward higher yields?  Or do the big miss and big revision to last month's New Home Sales data suggest that it's too volatile at the moment to pay much mind?  Maybe some of both?  Whatever the case, the modest bounce is enough to alleviate the reprice risk that had been building ahead of the data.  Here's a run-down of the report:

    • June New Home sales 406k vs 479k forecast (annual rate)
    • In percentage terms -8.1 percent is biggest drop since July 2013.
    • May revised to 442k from 504k
    • Northeast down 20 percent, Midwest -8.2, South -9.5, West -1.9
    • Supply at 5.8 months, highest since October 2011
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Thu, Jul 24 2014, 9:57 AM
  • Bond Markets Notably Weaker Overnight, and Again After Claims Data    MND Micro News  - Thu, Jul 24 2014, 8:51 AM

    Jobless Claims were significantly stronger than expected.

    • Claims 284k vs 308k forecast, 303k previously
    • Continued Claims 2.5mln vs 2.508mln previously, lowest since June 2007

    Bond markets were already quite a bit weaker overnight, mostly following German Bunds' bounce off recent lows (another one).  10yr yields bounced in a similar fashion between yesterday and today.

    For their part, MBS aren't under quite as much pressure as Treasuries with Fannie 3.5s down only 7 ticks in price compared to 10yr Treasuries' 11 ticks.  The next significant data is New Home Sales at 10am.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 23 2014, 3:12 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 23 2014, 2:25 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 23 2014, 10:59 AM
  • Bond Markets Improve Into Domestic Session    MND Micro News  - Wed, Jul 23 2014, 9:30 AM

    The overnight session was uneventful for Treasuries.  Asian hours saw US 10's hold steady at very slightly weaker levels.  European trading carried yields just a bit higher at first, but we've been in a moderate rally trend since 4am.

    There are very few salient sources of motivation for the move apart from the fact that bond markets seem inclined to be hovering around long term range boundaries ahead of a week that's big enough to potentially break them. 

    If anything, Bank of England (BOE) Minutes and subsequent comments from Carney helped global bond markets in general.  The BOE had talking about raising rates, but the Minutes painted them as less eager to do so.  Carney's comments concerned a weaker labor market--the same sort of cautionary tone with which Yellen speaks of the US labor market. 

    10yr yields have worked their way down to 2.453 and Fannie 3.5s are up 2 ticks at 102-21.  In a departure from recent connectivity with bonds, stocks are also improved, but only after spending the overnight session trading weaker.  It's notable (and sort of a dead giveaway) that stocks and bonds both broke toward more positive levels after a huge central bank remained friendlier than expected with QE.  (i.e. we see this consistently when the Fed, ECB, BOJ, or BOE embarks on or maintains their easy money policies, which benefit both stocks and bonds).

  • Back in Positive Territory After Familiar Rally    MND Micro News  - Tue, Jul 22 2014, 1:22 PM

    Is European trading having an outsized effect on the domestic bond market?  The past two sessions would seem to suggest this.  Yesterday, bonds rallied together before US markets pulled back in the other direction after Europe closed. 

    Today's dynamic was the same, but in the opposite direction.  In both cases, Treasuries have seen a bit of a 'pop' just before 1pm, as if they were released from some previous obligation and could suddenly do what they please.  This will shortly be marked up on the dashboard chart of 10yr TSYs.

    Whatever the case, the important part is that MBS are back in positive territory and any earlier negative reprice risk is effectively off the table.  Fannie 3.5s are up 1 tick on the day at 102-17.  10yr yields continue to hover around 2.47.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Tue, Jul 22 2014, 10:13 AM
  • Bonds Bounce Back on CPI After Opening Weaker    MND Micro News  - Tue, Jul 22 2014, 8:51 AM

    MBS opened 5 ticks weaker after Treasuries spent the overnight session moving steadily higher.  As has been the case of late, stocks and bonds continued moving together, but this time back toward riskier territory.  Of particular note was the move higher in German Bund yields as it's basically another bounce at all time lows.

    The morning's only 8:30am data--CPI--has marked a turning point in the weakness.  In fact, Fannie 3.5s just made it back to positive territory 10 minutes after the data.  10yr yields are down from 2.505 to 2.478.  Here's the run-down:

    • June CPI +.2573 vs +.3 forecast
    • Core CPI +.1291 vs +.2 forecast
    • Food +0.1, Housing +0.1
    • Inflation-adjusted average earnings +0.0 vs -0.1 previously

    This reaction is very important because it's by far and away the most pronounced response to CPI data in at least 4 years.  And for most of that time, it was an utter non-event.  In other words, we knew the day would come where markets would begin tuning back in to the price index data series.  Although we've noted a slight uptick in interest in recent months, today's leaves nothing to the imagination.

    In today's case, it looks like some market participants are/were defensive about the possibility that inflation could come in stronger than expected.  The simplest conclusion is that they're increasingly expecting changes in Fed policy based on inflation metrics.  That stands to reason considering the other half of the Fed's mandate (employment) is already showing the steady improvement needed in order to consider raising rates.  The more inflation we see, the sooner the Fed is seen raising rates.  As a final exclamation point on that thought, short end rates (those most tied to Fed Funds rate) are in positive territory while 10yr and 30yr Treasuries aren't quite there yet.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Jul 21 2014, 1:23 PM
  • Bond Market Gains Accelerate as Stocks Slide    MND Micro News  - Mon, Jul 21 2014, 10:47 AM

    In the first hour of cash trading, equities markets had been choppy and slightly weaker.  They took a sharper nose dive about 5 minutes ago and bond yields followed.  In general, the stock lever has been fairly well connected as bonds don't have much else to go on today.

    10yr yields are down 3bps now at 2.453 and Fannie 3.5s are up 6 ticks at 102-19.

  • Bond Markets Hold Gains Through Weekend as Global Tensions Intensify    MND Micro News  - Mon, Jul 21 2014, 9:01 AM

    As we discussed late last week, the ability for bond markets to hold gains related to geopolitical risk would be predicated on those risks intensifying.  Arguably, that's the case in both Ukraine and Gaza over the weekend as hostilities and casualties increased.

    That said, there weren't any surprises to catch markets off guard in the same way that some of last week's did.  As such, the bond market gains are modest.

    Japanese markets were closed for a national holiday, making for a slow start to the overnight session.  The European session saw sideways movement in core government debt.  German Bunds (10yr) traded modestly to either side of all time low yields

    Treasuries traded on either side of Friday's close, but have edged into slightly more positive territory as the domestic session gets underway.  MBS opened in line with Friday's close, but have added 2 ticks so far, bringing Fannie 3.5s to 105-21.

    There are no significant events on the calendar, leaving the focus geopolitics and perhaps domestic stock trading.

  • Sell-Off Subsides For Now; Slightly Diminishing Reprice Risk    MND Micro News  - Fri, Jul 18 2014, 1:10 PM

    MBS are 4 ticks (.125) higher now vs their weakest levels around 12:40pm.  10yr yields bounced back into the 2.48's.  While this could always turn out to be a temporary pause in an ongoing trend of weakness, it's slightly more than a random movement for now, and one that decreases the negative reprice risk that had been increasing until now.

    Some lenders may already have those balls in motion, but others that were on a fence may now be holding off.  All that having been said, it's not the kind of bounce that's anywhere close to tipping the scales toward positive reprices.  Point being: if you were going to lock today, we're not seeing any reasons to wait.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Jul 18 2014, 12:28 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Jul 18 2014, 11:21 AM
  • Bond Markets Weaker Overnight; Bouncing Back Into Domestic Session    MND Micro News  - Fri, Jul 18 2014, 9:03 AM

    After yesterday's decisive rally, Asia's first conclusion was that the rally had gone far enough.  Asian accounts sold Treasuries somewhat aggressively in the first part of the overnight session, taking 10yr yields from 2.44+ to  2.49+. 

    The bad times kept rolling for a few hours of the European session, but never bad enough to lift German Bund yields more than a few bps off the all-time closing lows seen yesterday.  Selling reversed course around 5am, and Bunds pushed into new lows yet again. 

    Treasuries were happy enough to come along for the ride with the Bund rally.  10's made it back to 2.46 and have been going mostly sideways since then.  MBS are 3 ticks weaker at 102-12 (Fannie 3.5s) and going even more sideways than Treasuries. 

    Why are MBS red and Treasuries green right now?  Treasuries are technically in the green because the official close is at 3pm.  MBS's close is at 5pm.  So the day-over-day changes are based on those times respectively.  Because there was more rallying from 3 to 5pm, MBS are measured against those stronger levels while Treasuries only have to beat the 3pm levels to be green.

  • Israel Ground Offensive in Gaza Sends Bond Yields Lower Still    MND Micro News  - Thu, Jul 17 2014, 4:09 PM

    At 3:11pm, Al-Jazeera reported the Israeli Army launched a large-scale ground, air, and sea offensive on the Gaza Strip.  It took bond markets several minutes to figure out what was going on (stocks even longer), but as the story came into clearer focus, both sides of the market took off (stocks and bond yields lower).  Israel's Prime Minister released an official statement confirming the ground offensive. 

    The rally carried 10yr yields through the important 2.47% level.  Although Treasuries technically mark the end of their trading day at 3pm, this is one of those cases where we  could justifiably wonder if the market activity wouldn't have been the same if the headline came out before 3pm.  In other words, 10yr yields officially closed above 2.47, but the move into the 2.45-2.46's isn't inconsequential.

    MBS have done their best to keep pace with the Treasury rally, but as is always the case with geopolitical risk rallies, Treasuries outperform.  Still, MBS are up 12 ticks on the day now at 102-15.  Positive reprices are incrementally more possible than they were at the last update. 

    The one glaring caveat for all this is that as soon as there's a turning point in geopolitical risk, the turning point in bond markets can be swift.


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