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  • Bond Markets Battle Back After Weaker Overnight Trading    MND Micro News  - Mon, Aug 11 2014, 9:28 AM

    Treasury yields moved slightly higher overnight, extending Friday afternoon's weakness in fairly linear fashion.  The weakness ended when European markets came online.  German Bund yields opened several bps higher (they hadn't had a chance to take part in Friday's sell-off), but began improving from there. 

    Treasuries started the domestic session a few bps higher.  10yr yields briefly hit 2.44 but are currently back down to 2.418, close to breaking even.  MBS started 1 tick lower and are now 3 ticks higher.  Domestic bond markets have been cautiously advancing this morning as European bond markets have been holding ground or improving.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Aug 8 2014, 4:04 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Aug 8 2014, 1:30 PM
  • Bond Markets Surge Overnight, Dialed Back, but Gaining Again; MBS Underperform Horribly    MND Micro News  - Fri, Aug 8 2014, 9:46 AM

    All that discussion we've been having on the unwillingness of MBS to participate in a geopolitical flight-to-safety is coming to an ugly head this morning.  Fannie 3.5s are struggling to hold even the most modest gains while Treasuries rally to 14-month lows. 

    Here's a play-by-play of the overnight rally and early morning correction:

    • Obama announces air strikes in Iraq, 10yr yields fall to 2.38 in Asian trading
    • European trading opens and bonds rally more.  German bunds hit high 1.02% range.  US 10's fall to 2.349
    • Market rout fizzles as equities were unwilling to go much lower, reversal was gentle at first.
    • Then news hit just before 8am that Russia is ready to mediate talks between Kiev and East Ukraine.  The reversal picked up steam and 10yr yields were back up to 2.41
    • The reversal has since leveled off and yields are back to 2.39. 

    Through it all, MBS are underperforming horribly with Fannie 3.5s up 5 ticks compared to the 11 ticks of price gains in 10yr Treasuries.   Economic data is present, but largely unimportant today.  Bond markets are fighting battles based on jockeying of trading positions and technical levels.  Beyond that, they're in tune with European markets for the next few hours at least.

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  • Bond Markets Rolled up by Afternoon Snowball Buying (That's a Good Thing)    MND Micro News  - Thu, Aug 7 2014, 3:11 PM

    Heading into (and out of) the 3pm close for Treasury pit trading, 10yr yields broke through the day's previous lows and have seen follow-through buying since then (now down to 2.419).  Stocks and European futures (both stocks and bonds) are in on the move.

    MBS have finally broken above yesterday's highs, now up 9 ticks at 102-20.  Positive reprices are now more possible than they were with the first rally of the day.

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  • Treasuries at Best Levels Since Late May after Ukraine Headlines; MBS Lagging    MND Micro News  - Thu, Aug 7 2014, 12:41 PM

    Bond markets were already doing fairly well, but got another jolt of positivity after newswires hit that a Ukrainian fighter jet was shot down over eastern Ukraine.  The market reaction is due to such headlines standing the chance to be the start of a war/invasion--a hot topic so far this week.

    German Bunds fell to 1.06--another new all-time low--and Treasuries followed by breaking to levels not seen since late May.  10's are currently trading just under 2.44.

    MBS have been lagging Treasuries both in the medium and short term--really, ever since the geopolitical risks stepped to the forefront in July.  All that to say that MBS are NOT at their best levels since late May, and they'd need to gain another half point to make that claim.

    That said, they're still up 6 ticks, which is enough for positive reprice potential.

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  • Bond Markets Holding Just Inside Positive Territory After Data and Draghi    MND Micro News  - Thu, Aug 7 2014, 9:24 AM

    Yesterday's high yields in Treasuries held as a supportive ceiling during the first part of the overnight session.  As European markets began trading, bonds improved slightly with 10yr Treasuries falling back into the 2.44's and German Bunds hitting new all-time lows again (1.08%).  That happened fairly early on in the European session and things were sideways in stronger territory from there.

    As expected, the ECB (European Central Bank) Announcement contained no surprises.  Jobless Claims were stronger than expected at 289k vs 305k.  Treasuries and MBS weakened just slightly as a result, but supportive comments for ECH Pres. Draghi helped bonds hold their ground.  The important comments included a reiteration of the ECB's commitment to holding rates low and  to working on their version of QE (which will instead be an Asset-Backed-Security purchase program).

    MBS and 10yr yields are currently holding just inside positive territory.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Aug 6 2014, 3:15 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Wed, Aug 6 2014, 11:03 AM
  • Bond Markets Pull Back as Stocks Rally Sharply at the Open    MND Micro News  - Wed, Aug 6 2014, 9:54 AM

    In addition to the European bond market strength overnight, S&P futures and other equities markets followed the move lower in bond yields overnight.  To a much greater degree than Treasuries, equities markets get a big injection of liquidity when cash trading opens at 9:30am.  Today's open has seen a sharp move higher with S&Ps already 8 points up from 9:30am levels.

    Treasuries and MBS have lost ground as a result.  Fannie 3.5s are down 3 ticks from 9:30 and 10yr yields are up about a bp.    This isn't quite enough weakness to warrant negative reprice risk yet.  Even then, it looks like we have a chance to bounce here.  Too soon to tell, but so far, so good.  We'll let you know if that changes.

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  • European Bonds Surge, Pulling US Yields Lower Overnight; Holding Ground Now    MND Micro News  - Wed, Aug 6 2014, 9:25 AM

    Ironically, part of the discussion in this morning's 'day ahead' concerned the respective floors underneath yields in both German and US debt.  Ironic because during the overnight session, German yields once again broke through the red line on this chart:

    2014-8-5 bunds and tsys

    And no sooner did that happen than 10yr yields moved below 2.47 again.  There's still some way to go before 10yr yields break the lows of the year, but 2.47 is a significant pivot point.  Being below there is akin to a runner taking a lead-off before stealing a base. 

    As for the European bond market strength, chalk that up to exceptionally weak economic data out of Germany (Industrial Orders fell at fastest pace since Sept 2011) and Italy's 3rd slide into recession since 2008.  Germany and Italy are the largest and 3rd largest economies in the EU respectively.  Weak UK data (industrial output) was icing on the cake for the European bond rally.

    10yr German Bunds fell to new all-time lows overnight, currently at 1.10.  Treasuries followed, and were down to 2.44 by 6:30am.  MBS opened a quarter point higher (+0-08 at 102-16). While European debt has continued to improve modestly, Treasuries and MBS have dialed it back a bit. 

    This reiterates the face that there is SIGNIFICANT resistance for Treasuries in this 2.44-2.47 neighborhood, but they will only let themselves get so far away from German yields before being forced to break lower.  With Europe being such a big driver this morning, keep an eye out for volatility heading into the EU bond market close at 1pm.

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  • Sideways to Slightly Weaker as Headline Impact Fades    MND Micro News  - Tue, Aug 5 2014, 4:09 PM

    This isn't a negative reprice situation for the average lender, but certainly a heads up that the trend in bond markets has been moderately weaker since just after 2pm.  MBS have been under relatively more pressure than Treasuries with Fannie 3.5s back down to -0-03 on the day at 102-08.  They'd been as high as 102-13 earlier.

    While the afternoon weakness doesn't necessarily connote negative reprice risk, it all but guarantees an absence of positive reprice potential (for those of you who might have been waiting).

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  • Bond Markets Break Into Positive Territory on Russia Invasion Headlines    MND Micro News  - Tue, Aug 5 2014, 2:22 PM

    Polish Foreign Minister Sikorski said that Russia is "poised to pressure or invade Ukraine."  No one seems to be sure what that means or how it's any different than having troops on the border for months, but apparently markets care.  Stocks and bond yields shot lower immediately following the headlines and MBS are now 2 ticks into positive territory.  10yr yields are almost down to yesterday's lows--currently at 2.478. 

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  • Bond Markets Bounce Back    MND Micro News  - Tue, Aug 5 2014, 12:52 PM

    After falling somewhat sharply after this morning's ISM Non-Manufacturing data, bond markets are bouncing back.  10yr yields are now back below pre-ISM levels and MBS are just now moving through theirs.  Fannie 3.5s are now down only 3 ticks at 102-09. 

    This alleviates any negative reprice risk from earlier lows. 

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Tue, Aug 5 2014, 10:22 AM
  • Bond Markets hit Weakest Levels After Stronger Data    MND Micro News  - Tue, Aug 5 2014, 10:12 AM

    Both of the 10am economic reports came in stronger than expected, and bond markets have weakened as a result.  Fannie 3.5s are at the lows of the day, down 4 ticks at 102-06.  10yr Treasury yields are up 1.8bps at 2.509.

    Prices haven't moved low enough to suggest negative reprice risk yet, but that could be the case if we lose a few more ticks. Here's a run-down of the data

    ISM Non-Manufacturing

    • ISM PMI 58.7 vs 56.3, highest since December 2005
    • Business Activity 62.4 vs 58.1, highest since Feb 2011
    • New Orders 64.9 vs 61.2 previously, highest since August 2005

    Factory Orders

    • June Orders +1.1 vs +0.6 forecast
    • June Durable Orders revised to +1.7 from +0.7

    Given the strength of those reports, bonds are actually holding their ground remarkably well.  As we discussed in this morning's 'day ahead,' part of the reason may be that these reports are falling AFTER the NFP/GDP readings.  In addition, it could just be taking time for the full effects to be felt in slower, summertime trading.

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  • Bond Markets Slightly Weaker Overnight and Into US Session    MND Micro News  - Tue, Aug 5 2014, 9:05 AM

    The overnight session began uneventfully in Asia with Treasuries and S&P futures holding excruciatingly flat.  The tone brought on by European hours was decidedly different.  Right from the start of European bond market trading, Treasuries have been pressured steadily higher in yield by a strong move higher in core European bond markets.

    10yr yields crossed into the domestic session just slightly higher and have weakened a bit more since then.  Similarly, MBS are 3 ticks lower at the moment after starting the day 1 tick lower.  Fannie 3.5s are currently at 102-08 and 10yr yields are up 1bp at 2.502.

    The day's only significant scheduled economic data arrives at 10am in the form of ISM Non-Manufacturing. 

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Aug 4 2014, 1:48 PM
  • MBS-Specific Weakness Following Scheduled Fed Buying    MND Micro News  - Mon, Aug 4 2014, 12:38 PM

    The day's scheduled Fed buying in MBS wrapped up at 11:45am.  Not even one minute later, MBS reversed course and began losing ground.  Not only that, but they increasingly underperformed Treasuries in the process.  Fannie 3.5s are down a fairly quick 6 ticks, introducing some small measure of negative reprice risk.

    That risk is limited to "on the horizon" for the most part as the 6/32nds of weakness is based on the day's highs.  No lenders released rates at the highs.  Prices are only 1-3 ticks off from rate sheet print times.  If the weakness continues, however, negative reprice risk would increase with another 2 ticks of losses (102-09 and below).

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  • Bond Markets Moderately Stronger to Start Domestic Session    MND Micro News  - Mon, Aug 4 2014, 9:06 AM

    Trading was fairly quiet in the overnight session.  10yr yields held a narrow range between 2.51 and 2.49.  The weakest level were seen right at the start of the Asian session.  Bonds improved somewhat after weak economic data in China.

    The biggest headline of the night was the announcement of a bailout for Portugal's troubled Banco Espirito Santo.  The bank's stock and Portuguese markets accounted for most of the market reaction, with heavily diminishing returns for the rest of the European bond market and overnight Treasury trading.

    With the onset of domestic trading, the normal increase in volume and participation has been positive for bond markets.  Both MBS and Treasuries crossed the 8AM threshold unchanged vs Friday's latest levels, and both have improved since then.

    Fannie 3.5 MBS are up 2 ticks at 102-12 and 10yr yields are down 2.15bps at 2.484.  There is no significant data on the calendar today.  The only game in town from a market-watching standpoint is to keep an eye on technical levels in Treasuries.  Things don't get serious for 10's unless yields approach 2.44 or 2.56.  It would be a surprise to see either of those broken today.

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  • EU Trading is Definitely a Consideration for US Bond Markets Today    MND Micro News  - Fri, Aug 1 2014, 2:19 PM

    2014-8-1 tsy bund

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  • Still Much Stronger on the Day, but Off Highs; Some Risk That We've Topped Out    MND Micro News  - Fri, Aug 1 2014, 1:57 PM

    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.

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  • Bond Markets Hit Best Levels on Dodged Bullets and EU Help    MND Micro News  - Fri, Aug 1 2014, 11:11 AM

    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.

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  • Stronger ISM Manufacturing Data Trips up Bond Markets, but Only Temporarily    MND Micro News  - Fri, Aug 1 2014, 10:11 AM
    • 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.

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  • Bond Markets Move Into Positive Territory After NFP; Could be Better, Could be Worse    MND Micro News  - Fri, Aug 1 2014, 8:45 AM
    • 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.

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  • 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. 

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  • 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.

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  • 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.

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