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Bond Markets Stronger Overnight, Weaker Into Mid-Morning
Posted to: Micro News
Friday, November 9, 2012 9:31 AM

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10yr yields came back from their nightly 3 hour break right in line with yesterday's 5pm levels and moved mostly lower throughout the overnight session in mostly good volume, ultimately hitting New York hours in the high 1.59s. That translated to MBS opening higher a few ticks in Fannie 3.0s, but both have since reversed course.

The damage, relative to yesterday, is more pronounced in MBS at the moment, which are actually 4 ticks in the red at 105-11 in Fannie 3.0s. 10yr yields, on the other hand, have just barely risen into negative territory

The Import/Export Prices data didn't have much of an effect, which is generally expected of all inflation data these days. That said, it might have actually had some effect (!), coming in +0.5 vs +0.0 expectations. The bigger considerations and bigger market movers have been tradeflows and technicals with the last visit to the high 1.5's in 10yr yields likely seen as a decent enough resistance level, either for consolidation or even a bounce.

In addition, there's more to come on the calendar for the day with Consumer Sentiment at 9:55 and Wholesale Inventories at 10am. For those who can manage to stick around for it, one of the most significant events of the day could be a 1:05pm speech from Obama on the "Fiscal Cliff." This is a topic that has been constantly increasing in importance throughout 2012 and drastically so following the election. Some of the bounce back into weaker territory in bond markets could be a hedge against Obama saying something encouraging or hopeful about tackling the cliff.

On a final note, remember that it's "Notification Day" for Fannie and Freddie 30yr MBS, meaning we'll see prices drop at the end of the session. Roll-related liquidity issues can definitely have an effect on how MBS are trading vs Treasuries so varying degrees of underperformance are to be expected.

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