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MBS MID-DAY: Sideways At Slightly Weaker Levels
Posted to: MBS Commentary
Friday, January 11, 2013 11:06 AM

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MBS Live: MBS Morning Market Summary
Bond markets got off to a rocky start in the overnight session following the announcement of new QE in Japan.  US Treasuries then glued themselves firmly to German Bunds and simply sat back to enjoy the ride.  It was good at first as yields fell throughout the first part of the European session, but a strong Italian debt auction marked a turning point for core European debt right as domestic traders were getting in for the morning.  10's and MBS sold off steeply into the opening bell for stocks but actually caught some supportive buying stepping in to stop the bleeding 5 minutes prior.  That marked the weakest levels of the day and we've been between opening levels and those weakest levels ever since.  There's a bit of a sideways drive in play at the moment, which is a welcome change from the morning weakness.  Perhaps markets are waiting to see what Bernanke has to say about all the recent FOMC hullabaloo on Monday.  The risk is that he offers some sort of tacit acknowledgement of the perceived shift in sentiment. 
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
104-01 : -0-03
FNMA 3.5
105-30 : -0-02
FNMA 4.0
106-23 : -0-01
FNMA 4.5
107-20 : -0-03
GNMA 3.0
105-04 : -0-02
GNMA 3.5
107-29 : -0-02
GNMA 4.0
109-07 : +0-01
GNMA 4.5
109-06 : -0-04
FHLMC 3.0
103-23 : -0-02
FHLMC 3.5
105-22 : -0-03
FHLMC 4.0
106-11 : -0-02
FHLMC 4.5
106-28 : -0-03
Pricing as of 11:05 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

10:01AM  :  ALERT ISSUED: Another Friday, Another Nauseating Sell-Off In The Morning
We're going to need to re-think the TGIF abbreviation...
Contenders:
HWGAF: "Here we go again Friday..."
OCNAF: "Oh crap, not another Friday...."
JGMOTCTCF: "Jane, get me off this crazy thing... called Friday."

And so on and so on....Long story short, we're back at the worst levels for bond markets since last Friday. Treasuries were acceptably weaker to start the overnight session, largely on the back of aggressive stimulus in Japan where $117 bln in new stimulus was approved.

Bond markets recovered into the domestic open with 10yr yields chopping heir way back down to 1.88. Volume was fairly big for the overnight session, huge for yesterday and given that there's no major economic releases, the second hour of the domestic session has been uncommonly big as well. As noted in The Day Ahead, bigger things are at stake.

In that context (not to mention the headline specifically pointing out that "big picture" trumps the econ data), it's not surprising to see a good amount of concern over the big picture ripping its way through bond markets. Yesterday's failure to break through the mid 1.8's pivot zone was a negative indication and follow through selling today simply adds to it.

All that having been said, and as we've noted both this morning and yesterday, any highs in Treasury yields that don't break above the 1.975 post-NFP highs, merely serve to suggest the continuation of a long-slow uptrend in yields. The current micro-trend over the past three sessions would comfortably allow for yields in the 1.96 area by 5pm.

That's not a prediction by the way. In fact, we'd rather hope that the highs are in for the day. But if things go higher, that's how much higher they could go without doing anything more than merely continuing negative trends.

10yr yields are currently up 1.5 bps on the day at 1.912 and Fannie 3.0s are down 3 ticks (post-roll) to 104-01. Stocks have come off a bit after the cash open and the pause in the risk-on trade has helped us catch our breath against a quicker pace of selling earlier.

Rather than imply that it's a stock-market-driven phenomenon, we'd instead suggest that USTs are more tuned in to Europe at the moment, and the domestic stock open coincided with a bounce lower in European benchmark debt and the European currency with that whole package of market metrics being of moderate benefit to the bond complex.

The day is young... Hopefully we'll move closer to TGIF by the end of it, but for now, we're feeling pretty defensive. (Keep in mind, we're FEELING defensive, but MBS are only 3 ticks weaker than yesterday's close, Treasuries only a bp or so higher). We COULD see a sort of "risk-off" bounce that some market participants have been pining for with stocks at their recent multi-year highs. Too soon to tell for now.
8:50AM  :  ECON: Import/Export Prices Roughly In Line With Expectations
- Imports -0.1 vs +0.1 forecast
- Exports -0.1 vs 0.0 forecast

The price index for U.S. imports edged down 0.1 percent in December, the U.S. Bureau of Labor Statistics reported today, after declining 0.8 percent the previous month. Falling fuel and nonfuel prices each contributed to the December decrease. U.S. export prices also fell 0.1 percent in December following a 0.7 percent drop in November.
8:43AM  :  ECON: Trade Gap Wider Than Expected in November
- Trade Gap $48.73 Bln vs $41.3 bln forecast

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total November exports of $182.6 billion and imports of $231.3 billion resulted in a goods and services deficit of $48.7 billion, up from $42.1 billion in October, revised. November exports were $1.7 billion more than October exports of $180.8 billion. November imports were $8.4 billion more than October imports of $222.9 billion.

In November, the goods deficit increased $6.6 billion from October to $65.7 billion, and the services surplus was virtually unchanged from October at $17.0 billion. Exports of goods increased $1.6 billion to $129.3 billion, and imports of goods increased $8.2 billion to $195.0 billion. Exports of services increased [forwardfullbody].1 billion to $53.2 billion, and imports of services increased [forwardfullbody].2 billion to $36.3 billion.

The goods and services deficit decreased [forwardfullbody].1 billion from November 2011 to November 2012. Exports were up $5.8 billion, or 3.3 percent, and imports were up $5.7 billion, or 2.5 percent.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Christopher Stevens  :  "WSJ "Roughly three-quarters of all loans in 2011 had a 43% dti and met most of the other characteristics of the defenition(QM). An additional 20% of loans that were above 43% dti met the second test.""
Matthew Graham  :  "RTRS- FED'S PLOSSER SAYS MANY COUNTRIES ARE TRYING TO USE MONETARY POLICIES TO PROTECT THEIR CURRENCIES "
Matthew Graham  :  "RTRS- FED'S PLOSSER SAYS MONETARY POLICY CANNOT SOLVE FISCAL PROBLEMS; FED SHOULD NOT FINANCE GOVERNMENT SPENDING "
Jeff Weaver  :  "its earnings season and S&P hit 5 yr high yesterday, if earnings are strong, bonds are going to struggle"
Matthew Graham  :  "it definitely counts for something, but as AH's sarcasm suggests, it's impossible to know for how much"
Matthew Graham  :  "good question JT. Somewhere between the 1.38 and 2.06, there's been an increase in the aggressiveness of central bank back-stopping."
Andrew Horowitz  :  "lets check the magic eight ball JT"
John Tassios  :  "You think FED buying in bonds / MBS keep us below 2.00 in 10 Year for a few more months?"
Matthew Graham  :  "Well said JT. That's the fear. I'd add, there can still be panic, but panic about different things--things that don't justify 2012 yield lows."
John Tassios  :  "in other words, the "Panic" bond trade is getting priced out and more "normal" economic slowdown bond trading taking hold / does that about sum it up MG ?"
John Rodgers  :  "more and more paper; fewer and fewer buyers. Spending cuts are a fantasy in the United Socialists States of America"
Andrew Horowitz  :  "not sure if i agree on that reasoning but the "deal" was bad for bonds from the standpoint that they actually did something"
Victor Burek  :  "cliff deal didnt stop the automatic spending cuts just postponed them"
John Rodgers  :  "more and more paper coming"
Victor Burek  :  "how so JR?"
John Rodgers  :  "and the "Cliff Deal" is very bad for bonds"
Andrew Horowitz  :  "Vic they have a system in place they believe to solve the debt crisis issue, a weak economy even one in recession will not have the same result as fear of a sovereign default by a country"
John Rodgers  :  "I agree with Gus."
Matthew Graham  :  "if the panic comes back, so will rates. Otherwise, see the chart in this morning's open for a conservative trajectory of recovery."
Matthew Graham  :  "it's the systemic collapse. If global investors believe the systemic collapse is at bay, we get what we've been getting, regardless of economic weakness"
Victor Burek  :  "i understand..the panic will come back"
Gus Floropoulos  :  "the worst is behind us"
Matthew Graham  :  "the weakness isn't the issue"
Matthew Graham  :  "well, a lot of people would disagree with that, citing that the fear/panic "stuff" regarding systemic collapse is actually getting much better. I don't know if that will continue to be the case, but it's a major source of concern at the moment."
Matthew Graham  :  "it was the uncertainty, fear, panic surrounding mega-scale systemic collapse of debt markets that pushed core yields to previously unfathomable lows."
Victor Burek  :  "i guess, but things are getting worse there..not better"
Matthew Graham  :  "simple recessions, even bad ones, don't justify the run seen in 2010-2012"
Matthew Graham  :  "the data can be as crappy as it wants... They know they're in a recession. They know the will continue to be"
Matthew Graham  :  "but the curtailment of panic continues to impress"
Victor Burek  :  "but the data from europe continues to disappoint"
Matthew Graham  :  "These "higher levels" that are roughly 15 bps lower than our previous conception of a panic-driven generational low in 10yr yields (12/2008 after Lehman collapse). It's only Europe that got us lower and the ECB was all sunshine and lollipops yesterday, so.... yeah..."
John Tassios  :  "Looks Like long end of bond curve still struggling / hopefully buyers come in and buy at these higher levels"
Matthew Graham  :  "yes, sometimes green bars are better than gold bars. (eh.. that was a stretch. I'll try to do better by the end of the day)"
Christopher Stevens  :  "GM MG- based on your chart this morning I am hoping to see the 10YR for a nice green bar today!"

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