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You are viewing Micro News from Friday, Mar 14, 2014 - View all recent Micro News
  • 3/14/14
    Drifting Toward Weekend Near Lows; Reprice Risk Remains

    While things haven't gotten any worse from the last alert, neither have they improved.  Stepping back from the charts a bit, we see the general 2-day move as a major flight-to-safety rally yesterday, followed by a move to level-off today. 

    For both Treasuries and MBS, today's leveling-off began with stronger morning levels and is ending with weakness in the afternoon.  Because Treasuries had a stronger morning by comparison, they've been able to hold on to "unchanged" levels in 10 and 30yr maturities, but only just.

    Fannie 4.0s are 3 ticks lower on the day--fairly close to unchanged in its own right, but 7 ticks off 9:30am levels.  Fannie 3.5s are down 6 on the day and 11 ticks from 9:30am.  Bouncing along the lows of the day leaves lenders who haven't repriced yet, at risk of doing so in the last two hours.  Obviously, risks would increase if we break the lows.

    Category: MBS, UPDATE
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  • 3/14/14
    (To make matters more complicated, in the time it took...
    MBS Updates are a service provided to MBS Live! subscribers only.
    Learn More | Start a Free Trial | View MBS Prices
    Category: MBS, alert
    Share:   
  • 3/14/14
    Reprice Risk Ebbs as Bonds Bounce Back

    To be fair to the notion of "bonds bouncing back,' they're not really doing too much apart from following more frantically traded markets such as stocks.  Swings between highs and lows have been faster and more furious for equities with a healthy day's worth of losses, turning to a healthy day's worth of gains, then back to losses again in the pace of a few hours this morning (in S&P futures).

    Detecting the peaks and valleys is a bit of a challenge with the volatility, but Bond markets saw one just after 10am--a time frame that also provides support from daily Treasury buying operations from the Fed.

    Bond markets (including MBS) aren't yet back to their best levels of the day, but they're more than half-way there.  This greatly eases any potential negative reprice risk that had been developing. 

    All that said, market-moving inspiration remains serendipitous, and not at all tied to economic fundamentals or even more "normal" tradeflow considerations.  It's all about Ukraine headlines and other, more compelling market movements.  Herd mentality.  Moo...

    Category: MBS, UPDATE
    Share:   
  • 3/14/14
    Why are Bond Markets Losing Ground This Morning?

    A few questions have come up as to why bond markets are losing ground this morning, especially after weaker Consumer Sentiment data.  (NOTE: Treasuries are still in positive territory on the day, and MBS are close to unchanged.  This discussion is more about why we might see serendipitous movements that don't necessarily align with default expectations based on incoming data or lack thereof).

    It's important to keep in mind that most of current movement in financial markets is being driven NOT by economic fundamentals or any other factors external to the market.  Rather, in geopolitical risk situations, markets trade on the observation of what  other market participants are doing.  It only takes a small amount of reaction to a particular headline to motivate organic movement, and from there, it's simply "herd mentality."

    If a few head of cattle see a nice patch of grass and walk quickly toward it, some of the others who don't see the grass may start following simply because "if those other cows are moving over there quickly, there must be a reason, and since I'm a cow too, what's good for them is probably good for me.  Wait up guys!" 

    Normally, our little herd would be spread out enough to see their own patches of grass for themselves and make their own culinary decisions.  But the geopolitical risk climate tends to bring the herd closer together.  None of the folks pushing buttons at trade desks are experts on Russia/Ukraine relations.  At times like this, there's less impetus to be opportunistic.  It's safer for any given cow to stick with the herd until she can get a more normal view of the landscape.

    All that to say: "anything can happen" when it comes to big geopolitically-driven rallies or sell-offs.  If stocks happen to bounce at a particular level for a particular reason, all Treasuries (and by extension, MBS) care about is that another big market sector bounced.  If German Bunds are bouncing in the same direction (moving away from panic), Treasuries are most likely to move in the same direction in this environment.

    2014-3-14 Treasury Versus

    On a final note, keep in mind that the current rally in bond markets is built on straw.  While it's true that some straw houses can be pretty darn nice, they rely on cooperation from the weather if they hope to last very long.  Remember that Ukraine headlines combined with month-end positivity in February to take bonds into unexpectedly strong territory.  After that, they returned to the same mild, higher-in-rate trajectory seen in mid-February.  It was only by virtue of yesterday's flare up in headline risk that bonds returned to the late February range. 

    2014-3-14 ukraine

    All that to say that the natural tendency would be to gravitate toward that higher-in-rate range in the absence of the Ukraine situation.  Bond markets have to muster a certain amount of extra energy to constantly be fighting the effects of that gravity, and they can only do it for so long unless fundamentals help out, and we'll be waiting at least until next week for that possibility.

    Bond markets are also cognizant of the possibility that fundamentals could suggest more economic positivity than expected, or more of a move away from the weather-related drag in January.  If such a thing happens to coincide with a 2nd phase of cooling tensions in the Ukraine, things could get very challenging very quickly for rates.  That's not to say they WILL get challenging (tensions could just as easily flare hotter and econ data could be crappy), but it's a risk to be aware of.

    Category: MBS, UPDATE
    Share:   
  • 3/14/14
    This morning's potential issue is the timing of...
    MBS Updates are a service provided to MBS Live! subscribers only.
    Learn More | Start a Free Trial | View MBS Prices
    Category: MBS, alert
    Share:   
  • 3/14/14
    Stronger Open on Putin 'Invasion' Wire, met with Resistance

    Bond markets had another mostly unchanged overnight session with Treasuries trading a very narrow range in light of ongoing events and high volumes.  By the open, both 10yr yields were both within a tick of yesterday's latest levels.

    Shortly thereafter, a wire came out saying "Putin is preparing to invade Eastern Ukraine" according to the Defense Minister of Estonia.  Bloomberg reported shortly thereafter that it was in an email.  If you think about that statement, and the fact that it was via email (as opposed to an official venue with more context where the words can actually be seen and heard coming from the claimed source), this might have been worth the market reaction it garnered.

    Still, our expectations for today is for these sorts of headlines to be seized upon and given as much weight as possible.  Debunking and re-weighting can come later.  Buy/Sell first.  Ask questions later.

    And that's exactly what we're seeing with the headline in question.  Treasuries and MBS popped into better territory immediately following the wire, but have since ebbed back closer to opening levels.  PPI data was inconsequential and uninteresting, as usual of late.  Next up is Consumer Sentiment at 9:55am.

    Category: MBS, UPDATE
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  • 3/14/14

    While things haven't gotten any worse from the last alert, neither have they improved.  Stepping back from the charts a bit, we see the general 2-day move as a major flight-to-safety rally yesterday, followed by a move to level-off today. 

    For both Treasuries and MBS, today's leveling-off began with stronger morning levels and is ending with weakness in the afternoon.  Because Treasuries had a stronger morning by comparison, they've been able to hold on to "unchanged" levels in 10 and 30yr maturities, but only just.

    Fannie 4.0s are 3 ticks lower on the day--fairly close to unchanged in its own right, but 7 ticks off 9:30am levels.  Fannie 3.5s are down 6 on the day and 11 ticks from 9:30am.  Bouncing along the lows of the day leaves lenders who haven't repriced yet, at risk of doing so in the last two hours.  Obviously, risks would increase if we break the lows.

    Category: MBS, UPDATE
    Share:   
  • 3/14/14
    (To make matters more complicated, in the time it took...
    MBS Updates are a service provided to MBS Live! subscribers only.
    Learn More | Start a Free Trial | View MBS Prices
    Category: MBS, alert
    Share:   
  • 3/14/14

    To be fair to the notion of "bonds bouncing back,' they're not really doing too much apart from following more frantically traded markets such as stocks.  Swings between highs and lows have been faster and more furious for equities with a healthy day's worth of losses, turning to a healthy day's worth of gains, then back to losses again in the pace of a few hours this morning (in S&P futures).

    Detecting the peaks and valleys is a bit of a challenge with the volatility, but Bond markets saw one just after 10am--a time frame that also provides support from daily Treasury buying operations from the Fed.

    Bond markets (including MBS) aren't yet back to their best levels of the day, but they're more than half-way there.  This greatly eases any potential negative reprice risk that had been developing. 

    All that said, market-moving inspiration remains serendipitous, and not at all tied to economic fundamentals or even more "normal" tradeflow considerations.  It's all about Ukraine headlines and other, more compelling market movements.  Herd mentality.  Moo...

    Category: MBS, UPDATE
    Share:   
  • 3/14/14

    A few questions have come up as to why bond markets are losing ground this morning, especially after weaker Consumer Sentiment data.  (NOTE: Treasuries are still in positive territory on the day, and MBS are close to unchanged.  This discussion is more about why we might see serendipitous movements that don't necessarily align with default expectations based on incoming data or lack thereof).

    It's important to keep in mind that most of current movement in financial markets is being driven NOT by economic fundamentals or any other factors external to the market.  Rather, in geopolitical risk situations, markets trade on the observation of what  other market participants are doing.  It only takes a small amount of reaction to a particular headline to motivate organic movement, and from there, it's simply "herd mentality."

    If a few head of cattle see a nice patch of grass and walk quickly toward it, some of the others who don't see the grass may start following simply because "if those other cows are moving over there quickly, there must be a reason, and since I'm a cow too, what's good for them is probably good for me.  Wait up guys!" 

    Normally, our little herd would be spread out enough to see their own patches of grass for themselves and make their own culinary decisions.  But the geopolitical risk climate tends to bring the herd closer together.  None of the folks pushing buttons at trade desks are experts on Russia/Ukraine relations.  At times like this, there's less impetus to be opportunistic.  It's safer for any given cow to stick with the herd until she can get a more normal view of the landscape.

    All that to say: "anything can happen" when it comes to big geopolitically-driven rallies or sell-offs.  If stocks happen to bounce at a particular level for a particular reason, all Treasuries (and by extension, MBS) care about is that another big market sector bounced.  If German Bunds are bouncing in the same direction (moving away from panic), Treasuries are most likely to move in the same direction in this environment.

    2014-3-14 Treasury Versus

    On a final note, keep in mind that the current rally in bond markets is built on straw.  While it's true that some straw houses can be pretty darn nice, they rely on cooperation from the weather if they hope to last very long.  Remember that Ukraine headlines combined with month-end positivity in February to take bonds into unexpectedly strong territory.  After that, they returned to the same mild, higher-in-rate trajectory seen in mid-February.  It was only by virtue of yesterday's flare up in headline risk that bonds returned to the late February range. 

    2014-3-14 ukraine

    All that to say that the natural tendency would be to gravitate toward that higher-in-rate range in the absence of the Ukraine situation.  Bond markets have to muster a certain amount of extra energy to constantly be fighting the effects of that gravity, and they can only do it for so long unless fundamentals help out, and we'll be waiting at least until next week for that possibility.

    Bond markets are also cognizant of the possibility that fundamentals could suggest more economic positivity than expected, or more of a move away from the weather-related drag in January.  If such a thing happens to coincide with a 2nd phase of cooling tensions in the Ukraine, things could get very challenging very quickly for rates.  That's not to say they WILL get challenging (tensions could just as easily flare hotter and econ data could be crappy), but it's a risk to be aware of.

    Category: MBS, UPDATE
    Share:   
  • 3/14/14
    This morning's potential issue is the timing of...
    MBS Updates are a service provided to MBS Live! subscribers only.
    Learn More | Start a Free Trial | View MBS Prices
    Category: MBS, alert
    Share:   
  • 3/14/14

    Bond markets had another mostly unchanged overnight session with Treasuries trading a very narrow range in light of ongoing events and high volumes.  By the open, both 10yr yields were both within a tick of yesterday's latest levels.

    Shortly thereafter, a wire came out saying "Putin is preparing to invade Eastern Ukraine" according to the Defense Minister of Estonia.  Bloomberg reported shortly thereafter that it was in an email.  If you think about that statement, and the fact that it was via email (as opposed to an official venue with more context where the words can actually be seen and heard coming from the claimed source), this might have been worth the market reaction it garnered.

    Still, our expectations for today is for these sorts of headlines to be seized upon and given as much weight as possible.  Debunking and re-weighting can come later.  Buy/Sell first.  Ask questions later.

    And that's exactly what we're seeing with the headline in question.  Treasuries and MBS popped into better territory immediately following the wire, but have since ebbed back closer to opening levels.  PPI data was inconsequential and uninteresting, as usual of late.  Next up is Consumer Sentiment at 9:55am.

    Category: MBS, UPDATE
    Share:   
 
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