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  • EU Trading is Definitely a Consideration for US Bond Markets Today    MND Micro News  - 6 hrs, 4 mins ago

    2014-8-1 tsy bund

  • Still Much Stronger on the Day, but Off Highs; Some Risk That We've Topped Out    MND Micro News  - 6 hrs, 27 mins ago

    For sadistic or extra-jumpy lenders, this could technically be a reprice alert as Fannie 3.5s are 5 ticks off highs.  That said, we'd still be more likely to see the average lender reprice positively.

    That doesn't mean there's no cause for concern, just that we're only at the very leading edge of a potentially risky situation.  We're also trying to get out in front of it a bit because we can see that bond markets clearly turned a corner the moment that European markets closed.

    So the risk is that the European close marked the bounce for the day and that we could continue into weaker territory from here.  It's those next few ticks of potential weakness that could have those jumpier lenders considering negative reprices.

  • Bond Markets Hit Best Levels on Dodged Bullets and EU Help    MND Micro News  - 9 hrs, 13 mins ago

    Fannie 3.5s are now up 11 ticks to the best levels of the day, currently 102-07.  10yr yields are also at their best levels, down 4.5bps at 2.513.  The latest move has been in progress since 10:30am when Treasuries broke the uptrend seen in this chart:

    2014-8-1 tsy

    Additional help is coming from a European bond market rally and stock sell-off.  There has also been some big-ticket buying in Treasury futures, with one of the block trades happening right in line with the breakout in the chart above.  Such "block trades" (big-ticket trades that take place outside the exchange) often motivate additional momentum in the smaller, mainstream trading. 

    With the strong possibility of a new "short positions" (bets that rates move higher) being taken out over the past 3 days, we can also assume that this strength is forcing those shorts to 'cover,' which they accomplish by buying Treasuries.  That buying further lowers yields, drawing in more short-covering.  Virtuous cycle for us today.  Hurray.

  • Stronger ISM Manufacturing Data Trips up Bond Markets, but Only Temporarily    MND Micro News  - 10 hrs, 12 mins ago
    • ISM Manufacturing 57.1 vs 56.0 forecast, 55.3 previously
    • Highest since April 2011
    • All component indices were stronger than expected/previous readings

    ISM is one of the most important pieces of economic data apart from NFP/GDP.  With bond markets already running into some resistance this morning, this made a clear case for a move back in the other direction. Refreshingly, the pull-back was short lived.

    MBS had briefly moved down 4 ticks (.125) from some lenders rate sheet print times.  Technically, that's enough for a negative reprice in some cases, though it's unlikely that lenders would have included the full effects of morning price gains on NFP day. 

    Add to that the fact that the post-data weakness has already paused and we're left with a line in the sand rather than a full-fledged sell-off.  The line is convenient as it will let us know when negative reprices would start to be a consideration again. 

    For MBS, it's at 101-30 in Fannie 3.5s.  We had that moments ago, but have already bounced up to 102-01.   For Treasuries, the line is at 2.56, also seen moments ago before a bounce down to 2.545.

  • Bond Markets Move Into Positive Territory After NFP; Could be Better, Could be Worse    MND Micro News  - 11 hrs, 39 mins ago
    • July NFP +209k vs +233k forecast, June revised to 298k from 288k, May revised to 229k from 224k
    • Unemployment Rate 6.2 vs 6.1 forecast, 6.1 previously
    • participation rate 62.9 vs 62.8 forecast/previous
    • Private payrolls 198k vs 230k forecast, June revised toe 270k from 262k
    • Hourly earnings 0.0 vs +0.2 forecast/previous
    • Workweek unchanged at 34.5

    After coming into the domestic session at slightly weaker levels, the NFP miss has been enough to get Treasuries and MBS back into positive territory.  That's great, and much better than the alternative, but the rally is lackluster so far, and has already seen the first major bounce. 

    If we end up not gaining much ground (or even losing ground) by the end of the day, it would be a strong negative statement on the longer term trend.  Or rather, it would add to the strong negative statement on the longer term trend we received with Wednesday's GDP.  Sadly, the absence of a stronger move right out of the gate already says a lot about the current state of play in bond markets.  Uphill battle.

    Fannie 3.5s are up 4 ticks on the day at 101-31 and 10yr yields are down only half a bp at 2.552.  S&P futures moved 6-7 points higher from overnight lows, but aren't yet back to yesterday's latest levels.

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Thu, Jul 31 2014, 3:17 PM
  • Holding Ground Now After Earlier Hiccup    MND Micro News  - Thu, Jul 31 2014, 2:52 PM

    Fannie 3.5s are back up to 101-29 now after moving down to 101-26 just after 2pm.  10yr yields had been as high as 2.575 during the same time and are now back down to 2.554.  Any negative reprice risk that had been approaching is now retreating.  Volatility leading up to (and away from) 3pm remains possible. 

  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Thu, Jul 31 2014, 2:20 PM
  • MBS Back into Positive Territory; Broader Bond Market Still on Fence    MND Micro News  - Thu, Jul 31 2014, 11:36 AM

    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  - Thu, Jul 31 2014, 9:56 AM

    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  - Thu, Jul 31 2014, 8:36 AM
  • Bond Markets Sideways Near Weakest Levels After Treasury Close    MND Micro News  - Wed, Jul 30 2014, 3:10 PM

    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  - Wed, Jul 30 2014, 2:21 PM

    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

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