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  • Back in Positive Territory After Familiar Rally    MND Micro News  - 11 hrs, 51 mins ago

    Is European trading having an outsized effect on the domestic bond market?  The past two sessions would seem to suggest this.  Yesterday, bonds rallied together before US markets pulled back in the other direction after Europe closed. 

    Today's dynamic was the same, but in the opposite direction.  In both cases, Treasuries have seen a bit of a 'pop' just before 1pm, as if they were released from some previous obligation and could suddenly do what they please.  This will shortly be marked up on the dashboard chart of 10yr TSYs.

    Whatever the case, the important part is that MBS are back in positive territory and any earlier negative reprice risk is effectively off the table.  Fannie 3.5s are up 1 tick on the day at 102-17.  10yr yields continue to hover around 2.47.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - 15 hrs, 0 mins ago
  • Bonds Bounce Back on CPI After Opening Weaker    MND Micro News  - 16 hrs, 23 mins ago

    MBS opened 5 ticks weaker after Treasuries spent the overnight session moving steadily higher.  As has been the case of late, stocks and bonds continued moving together, but this time back toward riskier territory.  Of particular note was the move higher in German Bund yields as it's basically another bounce at all time lows.

    The morning's only 8:30am data--CPI--has marked a turning point in the weakness.  In fact, Fannie 3.5s just made it back to positive territory 10 minutes after the data.  10yr yields are down from 2.505 to 2.478.  Here's the run-down:

    • June CPI +.2573 vs +.3 forecast
    • Core CPI +.1291 vs +.2 forecast
    • Food +0.1, Housing +0.1
    • Inflation-adjusted average earnings +0.0 vs -0.1 previously

    This reaction is very important because it's by far and away the most pronounced response to CPI data in at least 4 years.  And for most of that time, it was an utter non-event.  In other words, we knew the day would come where markets would begin tuning back in to the price index data series.  Although we've noted a slight uptick in interest in recent months, today's leaves nothing to the imagination.

    In today's case, it looks like some market participants are/were defensive about the possibility that inflation could come in stronger than expected.  The simplest conclusion is that they're increasingly expecting changes in Fed policy based on inflation metrics.  That stands to reason considering the other half of the Fed's mandate (employment) is already showing the steady improvement needed in order to consider raising rates.  The more inflation we see, the sooner the Fed is seen raising rates.  As a final exclamation point on that thought, short end rates (those most tied to Fed Funds rate) are in positive territory while 10yr and 30yr Treasuries aren't quite there yet.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Jul 21 2014, 1:23 PM
  • Bond Market Gains Accelerate as Stocks Slide    MND Micro News  - Mon, Jul 21 2014, 10:47 AM

    In the first hour of cash trading, equities markets had been choppy and slightly weaker.  They took a sharper nose dive about 5 minutes ago and bond yields followed.  In general, the stock lever has been fairly well connected as bonds don't have much else to go on today.

    10yr yields are down 3bps now at 2.453 and Fannie 3.5s are up 6 ticks at 102-19.

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  • Bond Markets Hold Gains Through Weekend as Global Tensions Intensify    MND Micro News  - Mon, Jul 21 2014, 9:01 AM

    As we discussed late last week, the ability for bond markets to hold gains related to geopolitical risk would be predicated on those risks intensifying.  Arguably, that's the case in both Ukraine and Gaza over the weekend as hostilities and casualties increased.

    That said, there weren't any surprises to catch markets off guard in the same way that some of last week's did.  As such, the bond market gains are modest.

    Japanese markets were closed for a national holiday, making for a slow start to the overnight session.  The European session saw sideways movement in core government debt.  German Bunds (10yr) traded modestly to either side of all time low yields

    Treasuries traded on either side of Friday's close, but have edged into slightly more positive territory as the domestic session gets underway.  MBS opened in line with Friday's close, but have added 2 ticks so far, bringing Fannie 3.5s to 105-21.

    There are no significant events on the calendar, leaving the focus geopolitics and perhaps domestic stock trading.

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  • Sell-Off Subsides For Now; Slightly Diminishing Reprice Risk    MND Micro News  - Fri, Jul 18 2014, 1:10 PM

    MBS are 4 ticks (.125) higher now vs their weakest levels around 12:40pm.  10yr yields bounced back into the 2.48's.  While this could always turn out to be a temporary pause in an ongoing trend of weakness, it's slightly more than a random movement for now, and one that decreases the negative reprice risk that had been increasing until now.

    Some lenders may already have those balls in motion, but others that were on a fence may now be holding off.  All that having been said, it's not the kind of bounce that's anywhere close to tipping the scales toward positive reprices.  Point being: if you were going to lock today, we're not seeing any reasons to wait.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Jul 18 2014, 12:28 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Jul 18 2014, 11:21 AM
  • Bond Markets Weaker Overnight; Bouncing Back Into Domestic Session    MND Micro News  - Fri, Jul 18 2014, 9:03 AM

    After yesterday's decisive rally, Asia's first conclusion was that the rally had gone far enough.  Asian accounts sold Treasuries somewhat aggressively in the first part of the overnight session, taking 10yr yields from 2.44+ to  2.49+. 

    The bad times kept rolling for a few hours of the European session, but never bad enough to lift German Bund yields more than a few bps off the all-time closing lows seen yesterday.  Selling reversed course around 5am, and Bunds pushed into new lows yet again. 

    Treasuries were happy enough to come along for the ride with the Bund rally.  10's made it back to 2.46 and have been going mostly sideways since then.  MBS are 3 ticks weaker at 102-12 (Fannie 3.5s) and going even more sideways than Treasuries. 

    Why are MBS red and Treasuries green right now?  Treasuries are technically in the green because the official close is at 3pm.  MBS's close is at 5pm.  So the day-over-day changes are based on those times respectively.  Because there was more rallying from 3 to 5pm, MBS are measured against those stronger levels while Treasuries only have to beat the 3pm levels to be green.

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  • Israel Ground Offensive in Gaza Sends Bond Yields Lower Still    MND Micro News  - Thu, Jul 17 2014, 4:09 PM

    At 3:11pm, Al-Jazeera reported the Israeli Army launched a large-scale ground, air, and sea offensive on the Gaza Strip.  It took bond markets several minutes to figure out what was going on (stocks even longer), but as the story came into clearer focus, both sides of the market took off (stocks and bond yields lower).  Israel's Prime Minister released an official statement confirming the ground offensive. 

    The rally carried 10yr yields through the important 2.47% level.  Although Treasuries technically mark the end of their trading day at 3pm, this is one of those cases where we  could justifiably wonder if the market activity wouldn't have been the same if the headline came out before 3pm.  In other words, 10yr yields officially closed above 2.47, but the move into the 2.45-2.46's isn't inconsequential.

    MBS have done their best to keep pace with the Treasury rally, but as is always the case with geopolitical risk rallies, Treasuries outperform.  Still, MBS are up 12 ticks on the day now at 102-15.  Positive reprices are incrementally more possible than they were at the last update. 

    The one glaring caveat for all this is that as soon as there's a turning point in geopolitical risk, the turning point in bond markets can be swift.

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  • Ongoing Positive Reprice Potential as Treasuries/MBS Hold Gains    MND Micro News  - Thu, Jul 17 2014, 2:17 PM

    Sharp, mid-day rallies based on surprise headlines can't ever be assumed to have staying power, but today's is holding up nicely.  10yr yields are currently close to an important technical level at 2.47, and have traded as low as 2.4674 this afternoon.  Fannie 3.5s are up 9 ticks to 102-12.

    Just after noon, both sides of the bond market looked like they might have rallied as much as they were going to rally for the day.  MBS especially, pulled back a quick 4-5 ticks from the highs.  But that was the extent of the afternoon drama as they've gradually moved back to previous highs.

    A few lenders have already repriced positively, and it remains a possibility for other lenders as long as we're at or near current prices.

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  • Strong Philly Fed Data Reinforces Bounce Toward Weaker Levels    MND Micro News  - Thu, Jul 17 2014, 10:08 AM

    Bond markets were already in the process of pulling back from their best levels of the day with consecutive bounces at 8:50 and 9:27am in Treasuries (around 2.495%).  MBS prices were also making the same turn toward weaker levels.

    The just-released Philly Fed Index offered further support for the bounce, though it hasn't made for a runaway sell-off just yet.  10yr yields are up to 2.51 (still 3bps lower on the day), and Fannie 3.5s are down to 102-07, still 4 ticks higher on the day. 

    Here's a run-down of the data:

    • Philly Fed business conditions 23.9 vs 16.0 forecast
    • New Orders 34.2 vs 16.8 previously
    • Employment Index 12.2 vs 11.9
    • Business Conditions highest since March 2011

    The bond market response may well pick up steam in the coming moments, but for now, there's no reprice risk implication.

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  • Bond Markets Stronger Overnight, and Another Boost From Weak Housing Data    MND Micro News  - Thu, Jul 17 2014, 9:37 AM

    Weak housing data is bittersweet for originators.   On the one hand, it speaks to ongoing stagnation in the demand for our services.  On the other hand, it's helps rates move lower.  Here's a run-down of the weak data in question:

    • June Housing Starts 893k vs 1018k forecast
    • Starts lowest since Sept 2013
    • May revised down to 985k from 1001k
    • Permits 963k vs 1040k forecast.
    • Permits lowest since Jan 2014

    This was in stark contrast to the stronger-than-expected Jobless Claims data

    • Claims 302k vs 310k forecast, 305k previously
    • Continued Claims 2.507mln vs 2.575mln forecast, 2.586mln previously

    Given that this is "survey week" Claims data (covering the same time period as the next NFP release), markets are giving a good amount of weight to the weaker housing data.  Either that or they data isn't the primary consideration and is simply being used as cover for traders' positional goals.  Reality is usually somewhere in between these days.

    Whatever the case, we are in the middle of a nice 2-day reversal from what looked like a broader move higher in yield.  The caveat is that it's more "nice" for Treasuries, which are up 12 ticks in price (down 4bps in yield to 2.496) while MBS are only up 6 ticks to 102-09.

    About half of the strength was already intact coming off the overnight session, with the other half showing up after the 8:30am data.  10am brings the only other important data of the morning with Philly Fed.

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  • Back to Unchanged Levels as Stocks Slide    MND Micro News  - Wed, Jul 16 2014, 11:10 AM

    Economic data has been fairly tame and mostly inconsequential this morning.  If anything, there was some moderate bond market weakness with each of the releases, but trading levels bounced back quickly in both cases.  The only other scheduled event of the morning is also turning out to be fairly uneventful as Yellen fields questions at the House Financial Services Committee testimony without drama so far.

    The bigger consideration at the moment is the stock lever.  Stock prices and bond yields have been following each other fairly well since domestic markets opened.  Yellen continues her chat with the HFSC, so if one of the committee members happens to ask something relevant, it's still technically possible Yellen could say something that moves markets. 

    Fannie 3.5s just hit unchanged levels on the day, but have since fallen back to 1 tick weaker.  10yr yields made it down to 2.539 and just bumped back up to 2.545--just barely in positive territory on the day.

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  • Bond Markets Slightly Weaker After Neutral Overnight Session    MND Micro News  - Wed, Jul 16 2014, 9:05 AM

    Compared to the gyrations seen during yesterday's domestic session, overnight trading was calm and sideways.  One of the tertiary market movers during that session was the European bond market.  To reiterate a fairly common theme, US bond markets are often forced to temper their predisposition to move higher because of incessantly lower yields in core European debt.

    This isn't the sort of thing that flat-out dictates where Treasuries must go.  Indeed the gap between European benchmarks and Treasuries recently stretched to its widest levels since the late 90's.  But neither is it something Treasuries can completely ignore.  In short, it's a drag on yields.

    After German Bund (that's their version of the 10yr Treasury) yields pulled up from another run toward all-time lows yesterday, 10yr yields never broke back below 2.53.  The same resistance 'floor' came into play 3 times in the overnight session.  The most recent bounce coincided with the onset of domestic trading.  Once again, the week's slightly bearish (read: 'higher yields') predisposition came to the surface and the bounce in Europe provided the cue for US Treasuries to head more decisively higher.

    That sounds a bit more serious than it might be considering two factors.  First, 10's are still under the 2.57% pivot point, even if only just (2.563).  Second, the level of outright day-over-day movement is pretty tame.  10's are up only 1.3 bps and Fannie 3.5 MBS are down an eighth of a point.  Could be worse.

    As far as things that could make it better, there's some moderately important economic data coming up at 9:15am and then Yellen is back on the Hill at 10am to talk to the deep thinking public servants in the House Financial Services Committee.

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  • Ongoing Weakness Heading Into Last Hour; MBS Still Off Lows    MND Micro News  - Tue, Jul 15 2014, 4:06 PM

    Fannie 3.5s are down 4 ticks on the day at 102-01.  While this is still a few ticks above the earlier lows, it puts MBS back in a situation where some lenders' initial rate sheets came out when prices were an eighth of a point higher.  This is basically the leading edge of negative reprice risk, though it's worth noting that it didn't result in negative reprices earlier today.

    10yr yields have also been losing ground progressively and are now back up to 2.556 after hitting 2.53 just after 1pm.  Negative reprice risk is almost entirely absent, but can't be ruled out completely in some isolated cases.  The biggest increase in risk would require another visit to the morning lows.

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  • Holding Ground/Moderate Bounce; Reprice Risk Pulling Back    MND Micro News  - Tue, Jul 15 2014, 11:27 AM

    Negative reprice risk is staying at bay for now.  It's not altogether absent, but has pulled back from the levels associated with the last alert.  10yr yields were as high as 2.57 and have now bounced to 2.56.  Fannie 3.5s are now down only 3 ticks after being 6 ticks lower at the time of the previous alert.  

    As long as these bounces continue to hold, we can avoid a majority of the previous reprice risk. 

    Senate questions for Yellen have been decent but boring.  No major surprises.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Tue, Jul 15 2014, 11:01 AM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Tue, Jul 15 2014, 10:33 AM
  • Back in Positive Territory As Yellen Testimony Begins    MND Micro News  - Tue, Jul 15 2014, 10:07 AM

    MBS and Treasuries are quickly back into positive territory after Fed Chair Yellen's prepared remarks contained no negative surprises.  Here are the highlights:

    • Fed's Yellen says economy continuing to improve but recovery not yet complete
    • Yellen says increases in federal funds rate target likely would occur sooner and be more rapid than currently envisioned if labor market continues to improve more quickly than anticipated by FOMC
    • Yellen says FOMC believes high degree of monetary policy accommodation remains appropriate
    • Fed's balance sheet to hit $4.5 trillion when bond-buying likely ends in October - fed monetary policy report
    • Use of fed funds to control interest rates "will not be feasible" during policy normalization - fed monetary policy report
    • Yellen says prices for real estate, equities and corporate bonds have risen appreciably but remain generally in line with historical norms
    • Yellen says too many Americans remain unemployed, inflation remains below fed's long-run objective and necessary financial reforms remain incomplete
    • Yellen says housing sector has recovered notably but activity has leveled off and readings this year continue to be disappointing
    • Yellen says significant slack remains in labor markets, highlighted by the continued slow pace of growth in most measures of hourly compensation
    • Yellen says most FOMC participants project that total and core inflation will be between 1.5 percent and 1.75 percent for this year as a whole
    • Yellen says "considerable uncertainty" surrounds FOMC's projections for economic growth, unemployment and inflation
    • Yellen says FOMC participants currently judge these risks to be nearly balanced but warrant monitoring in months ahead

    10yr yields are now down 1.81bps on the day to 2.53 and Fannie 3.5s are up 2 ticks at 102-06.

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  • Bond Markets Weaker After Retail Sales    MND Micro News  - Tue, Jul 15 2014, 8:46 AM

    Retail Sales

    • June Retail Sales +0.2 vs +0.6 forecast
    • May revised to +0.5 from +0.3
    • Excluding Autos +0.4 vs +0.5 forecast, May revised to +0.4 from +0.1
    • Excluding Autos/Building Materials/Gas, +0.6 vs +0.5 forecast, May revised to +0.2 from 0.0

    Empire State Manufacturing

    • 25.60 vs 17.0 forecast, 19.28 last month
    • Employment Index 17.05 vs 10.75 previously

    Import/Export Prices

    • Import Prices +0.1 vs +0.3 forecast
    • Export Prices -0.4 vs +0.2 forecast

    At face value the 0.2 vs 0.6 miss in Retail Sales should be a strong positive for bond markets, yet MBS and Treasuries are now moving into slightly weaker territory. 

    The counterpoints to the stronger Retail Sales headlines lie in the reports internals.  First off, the components (that stuff that "excludes" other stuff like autos or gas or building supplies or all three) was stronger than expected.  Additionally, May's numbers were revised higher across the board--in some cases significantly. 

    With the Empire State Manufacturing index also coming in stronger than expected, there's a strong enough case against bond markets for now, but markets may avoid getting too carried away before the 10am Yellen testimony.

    Fannie 3.5s are currently down 4 ticks at 102-02 and 10yr yields are up a bp at 2.556.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Jul 14 2014, 2:56 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Jul 14 2014, 1:49 PM
  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Mon, Jul 14 2014, 10:44 AM
  • Bond Markets Slightly Weaker Overnight; Slow Session so Far    MND Micro News  - Mon, Jul 14 2014, 9:04 AM

    Overnight trading has been uneventful for Treasuries, despite losing some ground.  The appetite for 'risk' shifted in favor of equities markets (and away from bonds, thus hurting rates) from the outset.  For now, that's the only obvious takeaway from Asian and European trading hours.

    The not-so-obvious takeaways are likely doing more to cause moderate weakness in Treasuries and MBS this morning.  After following German Bunds fairly well overnight, Treasury yields gapped higher right around 8:20am.  This is almost always a sure sign of CME traders being lined up to sell at the 8:20am CME open (electronic trading was already going on overnight, but the pit open is still a significant event for bond markets).

    Combined with the low volume and light participation, it doesn't take nearly as many bearish traders to move markets on days like today.  Bottom line, there's a "sell" bias in play since the CME open, and it's effects are somewhat magnified by thin trading conditions.

    10yr yields are up 1.6bps so far at 2.538.  Fannie 3.5 MBS are down 4 ticks (.125) at 102-10.  There is no significant scheduled data today.

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  • MBS LIVE ALERT Issued: Learn more about MBS Live MBS Live  - Fri, Jul 11 2014, 2:51 PM
  • Gains Mostly Holding; Slight Pull-Back in MBS; Uneventful Trading Day so Far    MND Micro News  - Fri, Jul 11 2014, 2:34 PM

    At the risk of "calling it" before "it" is technically over, the trading day was essentially over at 11am.  Participation fell off and we've spent a roughly equal time on either side of the 11am prices/yields. 

    There continues to be no salient connection between events in the market place and movements in MBS/Treasuries.  If we were forced to pick one, we might note the LOOSE correlations with equities. 

    With that in mind, stocks have been improving since just after 12:30pm and bond markets have come off their best levels.  But until/unless we see a bit more weakness here in bonds, the "over at 11am" thing looks like the case. 

    To be fair and cautious, there's always a chance that prices will leak lower into the afternoon.  Lighter participation means it takes less initiative (read: less $$) to move prices.  If that's going to happen, it will probably be apparent soon.   

    MBS, specifically are already pushing it a bit with prices down 3 ticks from the highs (102-15 vs 102-18).  That said, we've seen very few positive reprices, and none of them priced in the full move up to 102-18.  That would suggest no reprice risk at the moment.  We'd need to see 2-3 ticks of further weakness before that changed materially.

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  • Slightly Stronger After Uneventful Overnight Session    MND Micro News  - Fri, Jul 11 2014, 9:18 AM

    Not that it couldn't change, but for now, the cruise control is already engaged heading into the weekend.  10yr Treasuries traded in a narrow range overnight, following German Bunds almost exclusively, and staying well inside yesterday's range. 

    We haven't seen any salient market movers from the earnings calendar or European drama, though Portugal concerns did help out a bit overnight.  Wells earnings have already come and gone without much fuss (in line with expectations).

    10yr yields are trading about 1bp lower than yesterday's latest levels and MBS are 4 ticks higher.  Keep in mind, that 4 tick improvement is measured against the POST-roll prices (Fannie/Freddie 30yr MBS rolled last night).  That makes it look like prices are lower on the chart (because yesterday's chart is July coupons while today's is August).

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  • Selling Pressure Leveling-Off; Reprice Risk Waning    MND Micro News  - Thu, Jul 10 2014, 2:30 PM

    We haven't seen enough of a sustained bounce to completely rule out any lingering reprice risk, but certainly heading in that direction now.  After topping out just over 2.54 at 1:40pm, 10yr yields have managed to go no higher.  MBS turned a corner at the same time and are now 3 ticks above the lows of the day.

    If we hold here or better, it goes a long way toward eliminating negative reprice risk into the afternoon.  There are no salient event to credit for the bounce.

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