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  • MBS Back into Positive Territory; Broader Bond Market Still on Fence    MND Micro News  - 2 hrs, 0 mins ago

    Fannie 3.5s are up 6/32nds from the time that many lenders printed initial rate sheets, and are now officially back to positive territory on the day at 101-29.  10yr Treasuries are still about 1 bp higher on the day at 2.56.  In addition, this is right on the edge of a 'pivot point'--a horizontal line that's more likely to turn yields back in the other direction, but that connotes extra significance if broken.

    So essentially, we're waiting to see if 10's can break below 2.56 today.  That would be the first significant pivot point that would increase our fighting chances heading into tomorrow's NFP.  The dream-come-true pivot point is all the way down at 2.53, however.  That seems like too much to ask for now.

    The other thing to keep in mind is that today's resilience likely has much to do with 'month-end' tradeflows.  (read more...) And the connectivity between bond yields and stock prices suggests asset-allocation trading (i.e. money managers adjusting %'s of stocks vs bonds).  These are positive factors that would not be in play tomorrow.

    Bottom line, the more that 10yr yields could break below 2.56, the better.  The more they refuse, the worse the long-term implications are.

  • Chicago PMI Much Weaker Than Expected; Bond Markets Barely Budge    MND Micro News  - 3 hrs, 40 mins ago

    Fannie 3.5s moved up 2 ticks to 101-26  and 10yr yields fell just over 1bp to 2.58 following a weaker-than-expected Chicago PMI. 

    • July Chicago PMI 52.6 vs 63.0 forecast, 62.6 in June
    • Lowest since June 2013

    Given the magnitude of that 'miss,' bond markets really haven't recovered much, but we're only 10 minutes into the reaction so far.  Ideally, we'd want MBS and Treasuries to dig back in to yesterday's ranges.  Anything else simply confirms the negative bias leading up to tomorrow's NFP.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - 5 hrs, 0 mins ago
  • Bond Markets Sideways Near Weakest Levels After Treasury Close    MND Micro News  - 22 hrs, 25 mins ago

    Bond markets have done a reasonably good job of not losing any more ground following the FOMC Announcement.  While it brought a solid amount of trading activity into the market relative to most of today, it remains completely dwarfed by the impact of this morning's GDP 'beat.' 

    10yr yields got supportive in the 2.56% zone that we suggested 2 alerts ago.  This simply looked like the first major inflection point for any large sell-off today.  In other words, as far as "big, bad moves" go, this one was fairly logical so far.

    Keep in mind that pit trading in Treasury futures closes at 3pm.  Bond markets can be less liquid for the next 2 hours (which we refer to as 'after hours').  This occasionally results in choppier movement.  All that to say, we're not out of the woods completely.  Holding sideways here is good for today if it stops the bleeding, but is also a logical place to rest if bond markets plan on marching higher in yield.

    MBS have held up slightly better than Treasuries today, and have also held their ground since 1pm.  Fannie 3.5s are now down "only" 19 ticks (it was as much as 23 ticks earlier, or .71875).  Despite the ground-holding, we've lost so much ground today that some lenders could still have lingering negative reprices to get out.  Of course risks could also increase again if bonds slide in 'after hours' trading.

  • Key Differences in FOMC Statements; All About Inflation; Not Much Market Reaction    MND Micro News  - 23 hrs, 15 mins ago

    Some of the less consequential changes from last time to this time:

    • "recent months" became "the second quarter" in addressing a rebound in economic activity
    • Before: "labor market indicators generally showed further improvement"
    • After: "Labor market conditions improved," but the Fed added that a range of indicators suggest a "significant underutilization of labor resources."  Maybe they get paid per letter?  I think that just means "labor market slack."  Or better yet, job market decent, but not great.
    • Recover in housing sector now "remains" slow, vs "remained" last time.

    And the biggest changes:

    • After: "Inflation has moved somewhat closer to the committee's longer-run objective."
    • Before: "Inflation has been running below the committee's longer -run objective

    • Before: "labor market conditions will continue to improve gradually toward" levels the committee judges consistent with its dual mandate."
    • After: "labor market indicators and inflation moving toward levels the committee judges consistent with its dual mandate."

    • Before: "The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term."
    • After: " likelihood of inflation running persistently below 2 percent has diminished somewhat."

    Here's the full mark-up of past vs current FOMC Statements:

    Basically, it's all about an incremental increase in the assessment of inflation.  It's fodder for the anticipated rate-hike being on track.  That said, it hasn't come as much of a surprise to markets.  Not only have bonds not moved much, but there hasn't been a major change in the shape of the yield curve either (and that's where we'd expect to see markets pricing in any major changes in the rate-hike outlook).


  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 30 2014, 1:13 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 30 2014, 12:15 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 30 2014, 11:28 AM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Jul 30 2014, 10:51 AM
  • GDP +4.0 Percent. Bond Markets Sharply Weaker, but Holding For Now    MND Micro News  - Wed, Jul 30 2014, 8:50 AM
    • 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  - Wed, Jul 30 2014, 8:30 AM

    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  - Tue, Jul 29 2014, 3:50 PM
  • Bond Markets Holding in Better Territory After 5yr Auction    MND Micro News  - Tue, Jul 29 2014, 3:50 PM

    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  - Tue, Jul 29 2014, 3:50 PM

    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  - Tue, Jul 29 2014, 3:50 PM

    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

More From MND

Mortgage Rates:
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MBS Prices:
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Recent Housing Data:
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