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You are viewing Micro News from Friday, Feb 21, 2014 - View all recent Micro News
  • 2/21/14
    Positive Reprice Potential Ramps Up

    Bond markets are more firmly into positive territory now with Fannie 4.0s and 3.5's up 3-4 ticks on the day.  Compared to many lenders' rate sheet print times, prices are 6-8 ticks higher, more than enough improvement for positive reprices.

    10yr yields are 1.5 bps lower on the day now at 2.739.  Flows are light, but have been decisively skewed toward strength since equities markets opened at 9:30am.  Position-squaring into the European close is also said to have helped extend gains.

    Category: MBS, UPDATE
    Share:   
  • 2/21/14
    Bond Markets Back to Unchanged Levels

    After moving into weaker territory at the open, bond markets have trudged uneventfully back to unchanged levels.  10yr yields are just barely into positive territory while MBS are +0-00 at 104-02 (Fannie 4.0).

    Most of the move took place before the Existing Home Sales data and there was no marked change in the morning's trend after it hit.  So that can effectively be ruled out as a significant market mover, if it wasn't already.

    Notably, stocks and bonds have improved in concert, so we can conclude some bond-market-specific motivation in the form of the "less-overt" factors we've been discussing this week (corporate bond hedging, tradeflows and technicals).  All told, it's still not much movement and volume is lighter than yesterday. 

    Category: MBS, UPDATE
    Share:   
  • 2/21/14
    Existing Home Sales Slightly Weaker than Forecast; Limited Reaction

    Much in the same vein as previous economic reports this week, bond market trading volume has increased noticeably while yields/prices haven't moved in the first few minutes.  Stocks may be rising though, and that could be the deciding factor for the bond market reaction.  We'll see.

    Unlike the week's previous housing-related economic releases, Existing Home Sales were fairly close to consensus.  Here's the run-down:

    Existing Home Sales

    • 4.62 mln vs 4.68 mln forecast (January, annualized pace)
    • Lowest since July 2012
    • December unrevised at 4.87 mln
    • 1.9 mln units for sale, 4.9 months worth
    • 15 percent were distressed sales
    • Median prices decline from $198k to $188.9k.  Still 10.7 pct higher year over year

    10yr yields still steady at 2.757 and Fannie 4.0s just half a tick under 104-00 (down 2 on the day)

    Category: MBS, UPDATE
    Share:   
  • 2/21/14
    Bond Markets Weaker Into US Session After Calm Overnight Trading

    Fannie 4.0s are down a quick 5 ticks at the open and 10yr yields are up 2.3bps before any data or significant news have had a chance to be digested.  The culprits are the same as they have been (and likely will continue to be next week).

    What are those and why?

    Because economic data can't be traded upon in a normal way right now due to the weather debate, other trading cues are having an outsized effect.  One of the bigger considerations this week and next is the corporate bond market.  Without overcomplicating the issue any more than necessary, suffice it to say that one strategy employed by firms who are issuing debt is to sell Treasuries in order to lock-in their rate of return between the time their offering is priced and fully subscribed.  If you want to read a little more about how that works, our old coverage of the Verizon bond deal is a reasonable primer (read it...).

    So as corporate bond issuance has ramped up this week and is expected to be high next week, it has brought some understandable pressure to Treasuries and, by extension, MBS (corporate issuers aren't locking rates with MBS, but when they do so with Treasuries, MBS are indirectly affected).

    Beyond that, market movement is awarded to whoever is clamoring the loudest to make it happen.  Right now, we're hearing/seeing that from the "fast money" crowd (leveraged, short term, speculative trading, primarily associated with hedge funds.  The opposite would be "real money," which is typically associated with strategic, long-term, less risk vs reward type investing of entities such as insurance funds and money managers.  Think tortoise vs hare).  Long story short, we've simply had one vocal segment of the investor community clearly favoring selling this week.  They don't have to offer an explanation or justification.  It just is.

    One guess as to what these tactical traders see to prompt this bias is that the combination of the technical environment and the "weather debate" gave a pretty clear signal (in hindsight at least) that 10yr yields in the high 2.5s were about a quarter of a point too low.  Mid to upper 2.7's would be a much more central/neutral zone in what has been a 2.47 to 3.05 range for 8 months. 

    Neutral and central is a good place to be when the normal significant market motivations cease to motivate.  If this assessment pans out, selling momentum should lessen or reverse as yields rise out of the central zone (Feb 12th is a good example of this potentially already happening once).  In the time it took to type that, MBS are already back up 2 ticks and 10yr yields fell about 1bp.

    Category: MBS, UPDATE
    Share:   
 
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  • 2/21/14

    Bond markets are more firmly into positive territory now with Fannie 4.0s and 3.5's up 3-4 ticks on the day.  Compared to many lenders' rate sheet print times, prices are 6-8 ticks higher, more than enough improvement for positive reprices.

    10yr yields are 1.5 bps lower on the day now at 2.739.  Flows are light, but have been decisively skewed toward strength since equities markets opened at 9:30am.  Position-squaring into the European close is also said to have helped extend gains.

    Category: MBS, UPDATE
    Share:   
  • 2/21/14

    After moving into weaker territory at the open, bond markets have trudged uneventfully back to unchanged levels.  10yr yields are just barely into positive territory while MBS are +0-00 at 104-02 (Fannie 4.0).

    Most of the move took place before the Existing Home Sales data and there was no marked change in the morning's trend after it hit.  So that can effectively be ruled out as a significant market mover, if it wasn't already.

    Notably, stocks and bonds have improved in concert, so we can conclude some bond-market-specific motivation in the form of the "less-overt" factors we've been discussing this week (corporate bond hedging, tradeflows and technicals).  All told, it's still not much movement and volume is lighter than yesterday. 

    Category: MBS, UPDATE
    Share:   
  • 2/21/14

    Much in the same vein as previous economic reports this week, bond market trading volume has increased noticeably while yields/prices haven't moved in the first few minutes.  Stocks may be rising though, and that could be the deciding factor for the bond market reaction.  We'll see.

    Unlike the week's previous housing-related economic releases, Existing Home Sales were fairly close to consensus.  Here's the run-down:

    Existing Home Sales

    • 4.62 mln vs 4.68 mln forecast (January, annualized pace)
    • Lowest since July 2012
    • December unrevised at 4.87 mln
    • 1.9 mln units for sale, 4.9 months worth
    • 15 percent were distressed sales
    • Median prices decline from $198k to $188.9k.  Still 10.7 pct higher year over year

    10yr yields still steady at 2.757 and Fannie 4.0s just half a tick under 104-00 (down 2 on the day)

    Category: MBS, UPDATE
    Share:   
  • 2/21/14

    Fannie 4.0s are down a quick 5 ticks at the open and 10yr yields are up 2.3bps before any data or significant news have had a chance to be digested.  The culprits are the same as they have been (and likely will continue to be next week).

    What are those and why?

    Because economic data can't be traded upon in a normal way right now due to the weather debate, other trading cues are having an outsized effect.  One of the bigger considerations this week and next is the corporate bond market.  Without overcomplicating the issue any more than necessary, suffice it to say that one strategy employed by firms who are issuing debt is to sell Treasuries in order to lock-in their rate of return between the time their offering is priced and fully subscribed.  If you want to read a little more about how that works, our old coverage of the Verizon bond deal is a reasonable primer (read it...).

    So as corporate bond issuance has ramped up this week and is expected to be high next week, it has brought some understandable pressure to Treasuries and, by extension, MBS (corporate issuers aren't locking rates with MBS, but when they do so with Treasuries, MBS are indirectly affected).

    Beyond that, market movement is awarded to whoever is clamoring the loudest to make it happen.  Right now, we're hearing/seeing that from the "fast money" crowd (leveraged, short term, speculative trading, primarily associated with hedge funds.  The opposite would be "real money," which is typically associated with strategic, long-term, less risk vs reward type investing of entities such as insurance funds and money managers.  Think tortoise vs hare).  Long story short, we've simply had one vocal segment of the investor community clearly favoring selling this week.  They don't have to offer an explanation or justification.  It just is.

    One guess as to what these tactical traders see to prompt this bias is that the combination of the technical environment and the "weather debate" gave a pretty clear signal (in hindsight at least) that 10yr yields in the high 2.5s were about a quarter of a point too low.  Mid to upper 2.7's would be a much more central/neutral zone in what has been a 2.47 to 3.05 range for 8 months. 

    Neutral and central is a good place to be when the normal significant market motivations cease to motivate.  If this assessment pans out, selling momentum should lessen or reverse as yields rise out of the central zone (Feb 12th is a good example of this potentially already happening once).  In the time it took to type that, MBS are already back up 2 ticks and 10yr yields fell about 1bp.

    Category: MBS, UPDATE
    Share:   
 
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