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Snowball Buying for Bonds as Treasuries Break 2014 Lows
Posted to: Micro News
Wednesday, May 14, 2014 10:21 AM

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MBS are great and all, but when it comes to motivating a quick, forcefull bout of snowball buying, "new 2014 MBS highs" aren't even in the same league as "new 2014 yield lows" in Treasuries, especially when that occurs at the same time that stocks are making a quick move lower at the open.

Such was the case at today's stock market open.  As 10yr yields broke below 2.57, buying ramped up exponentially.  The stock-market correlation is definitely NOT the main story here.  The surge was centered on the technical break of the morning's previous lows.

Even that technical break isn't really the big story in the bigger picture.  The morning, the week, and the month continue to be most inspired by overseas markets.  Ukraine headlines may be a part of this, but the biggest news is definitely the gathering storm (of monetary policy easing) at the ECB.  Take a look at how Germany's 10yr has fared against Treasuries.  This chart sets the two to the same highs and lows in April and early May so we can observe how they've moved relative to each other in the past week.  It's pretty clear where the extra downward pressure on rates is coming from.

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This, of course, synergizes with the 'snowball buying' mentioned in the last alert.  "Like begets like," and all that...

10's are currently down to 2.546.  MBS are woefully underperforming, and we wouldn't expect them to keep pace on these sorts of moves where motivation is coming from Europe and snowball buying.   Versus the 20 tick price gain in 10yr yields, MBS are up only 9 ticks in Fannie 3.5s.  Still, those are the best levels of the year, and should result in a few positive reprices when the rally levels off. 

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  • 30YR FNMA 5.0 110-17 (-0-04)
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  • Refinance Index 11.33%
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  • Purchase Index 8.43%