Holding Gains After Beige Book; Positive Reprices
The just-released Beige Book was sort of a let-down in terms of offering any sensational insight regarding the effects of the government shutdown on the economy. If you're interested in devoting a portion of your life to reading it
, you'll find that most respondents in most districts referenced the possibility of a "protracted shutdown" having more of an effect on their corner of the economy, but that no major ill effects were yet present. Most noted that they'd generally be bouncing back if the shutdown ended soon.
Quantifying "soon" is a bit of a challenge considering the last day of data collection was October 7th. We can't really know how the respondents would feel today, on the 16th, but as long as we told them the shutdown might be ending tomorrow morning, the existing data suggests they'd probably be mostly OK with it.
That's a net negative, as far as bond market implications are concerned, but today it must be balanced against the short-term euphoria of short-term funding markets coming back online in response to the potential debt deal--not to mention the technical and tradeflow-based snowball rally that began at 11am.
While bond markets have indeed done more to level off since 2pm, that seems to be less about the Beige Book and more about the big gluts of activity coming earlier in the day, coinciding with debt deal headlines and technical stops ("stops' meaning traders' predetermined lines in the sand that, if crossed, force the exit of a position, aka "forced buying").
Whatever the case, we sit well above yesterday's highest MBS prices at this point with Fannie 3.5's up 13 ticks at 101-09. Many lenders have repriced positively--some twice--and more may get on board as current levels are maintained. The House and Senate are expected to have passed a debt deal by tonight.