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Bond Markets Calmly Stronger Overnight, Flat Morning For MBS
Posted to: Micro News
Wednesday, November 28, 2012 9:49 AM

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US Treasuries hit the Asian open at Tuesday's best levels after comments from Senate Majority Leader Reid continued to provide a "risk-off" bid. 10's began rallying steadily into the European session with 10's moving from 1.64 to just under 1.61 at the US open. European markets eventually got on board with the Treasury rally, but the fact that it was Treasury-led, seems to suggest more underlying focus on domestic issues, where the Fiscal Cliff is currently the 800-lb gorilla.

There are, however, no "scheduled releases" of Fiscal Cliff information, so the constant sense of "waiting" has markets a bit nervous. We're now into trading levels in Treasuries that discount almost all the recent positivity over the Greece deal. 10yr yields have moved back to the bottom of their two month range while the Euro is still slightly higher than the midpoint of its range over the same time.

In such "risk-off" moves, Treasuries typically benefit more readily than MBS. That's the case this morning as Fannie 3.0s trade 4 ticks higher at the moment (105-08) while 10yr TSYs are 10 ticks higher in price (comparing price to price isn't always a reliable indicator of relative performance, but in today's case, we'd note that spreads are indeed a few bps wider, confirming the Treasury outperformance).

Still, most of the directional gains were in the overnight session and while Treasuries maintain a bit of that positive momentum, they've taken a decidedly sideways step since 9am and haven't extended into better territory despite a weak open for US stock markets. MBS are even more decidedly sideways in a tight range between 105-07 and 105-10. We haven't had any economic data yet this morning, apart from the weekly Mortgage Applications data early this morning. 'New Home Sales' is coming up at 10am followed by Fed Twist buying from 10:15-11:00 and the 5yr Treasury Auction at 1pm. President Obama is also scheduled to speak at 11:35am ET.




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