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You are viewing Micro News from Wednesday, Mar 26, 2014 - View all recent Micro News
  • 3/26/14
    Bond Markets Stronger After A+ Auction

    The 5yr Auction killed it.

    Bid-to-cover (measure of demand) was stellar at 2.99 and the yield award was much lower than the 1pm 'when-issued' yield; 1.715 vs 1.730.  That's the biggest beat in over 2 years, driven primarily by non-dealer bidders.

    Bond markets are rallying in response with MBS at new highs for the day, up 9 ticks at 104-03.  10yr yields are soaking up some of the sunshine, down to new lows of 2.714.  5yr yields are the best performers though (obviously), having moved down to 1.679 from 1.70, and down more than 4bps on the day vs 10yr's 2.3bps day-over-day gain.

    Positive Reprices are possible if not probably at current levels.

    Category: MBS, UPDATE
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  • 3/26/14
    5yr Auction Preview

    MBS are still 6/32nds higher on the day and only 2/32nds off their best levels.  The upcoming 5yr auction at 1pm remains the next potential chance for bigger movement.

    Two of the key metrics in assessing the auction's performance are the demand (measured by the 'bid-to-cover' or BTC) and the 'high yield' (which, for the purposes of Treasury auctions is the only one that matters).

    The BTC can be measured against past performance.  In that regard, the last auction had the strongest levels of demand since September 2012.  The BTC was 2.98 in February, but as low as 2.42 in December.  The average of the past 4 is 2.65

    The yield can be measured against the 1pm yield level of 5yr When-Issued trading.  It's currently at 1.73-1.731, though may change in the next few minutes.  If the high yield is lower than that, it's a net-positive for bond markets in general, and vice versa if it's higher.

    More background info on auction watching HERE.

    Category: MBS, UPDATE
    Share:   
  • 3/26/14
    Bond Markets Back into Positive Territory After Durable Goods Paradox

    As with so many economic data releases, today's Durable Goods report has a "headline" and "internal components."  The headline is simple enough; just "durable goods orders."  The components are essentially the building blocks for the headline, or some combination of those building blocks meant to filter out some level of volatility in the data. 

    For instance, if we know that a large portion of the headline is accounted for by aircraft manufacturing, and defense spending, and if we know that these two components can vary greatly from month to month, we may well be interested to know how Durable Orders fared without contributions from those two components.

    Indeed this is one of the most closely watched internal readings in the report--the "Nondefense Ex-Air."  Simply put, it's Durable Goods minus aircraft manufacturing and defense spending.  It's interesting today because it fell by 1.3 percent compared to a forecast gain of 0.7 percent.  It was also revised down to +0.8 in January from +1.5 previously.

    For the most even-keeled component of the report to miss by that much AND to be revised so much lower is a more meaningful consideration for markets than the headline Durable Goods reading of +2.2.  As such, markets are able to overlook the stronger-than-expected headline and Treasuries/MBS are permitted a moderately-sized morning rally.

    This morning, it takes Fannie 4.0s into positive territory, currently up 2 ticks on the day at 103-28 after opening 1 tick lower at 103-25. 

    Category: MBS, UPDATE
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  • 3/26/14

    The 5yr Auction killed it.

    Bid-to-cover (measure of demand) was stellar at 2.99 and the yield award was much lower than the 1pm 'when-issued' yield; 1.715 vs 1.730.  That's the biggest beat in over 2 years, driven primarily by non-dealer bidders.

    Bond markets are rallying in response with MBS at new highs for the day, up 9 ticks at 104-03.  10yr yields are soaking up some of the sunshine, down to new lows of 2.714.  5yr yields are the best performers though (obviously), having moved down to 1.679 from 1.70, and down more than 4bps on the day vs 10yr's 2.3bps day-over-day gain.

    Positive Reprices are possible if not probably at current levels.

    Category: MBS, UPDATE
    Share:   
  • 3/26/14

    MBS are still 6/32nds higher on the day and only 2/32nds off their best levels.  The upcoming 5yr auction at 1pm remains the next potential chance for bigger movement.

    Two of the key metrics in assessing the auction's performance are the demand (measured by the 'bid-to-cover' or BTC) and the 'high yield' (which, for the purposes of Treasury auctions is the only one that matters).

    The BTC can be measured against past performance.  In that regard, the last auction had the strongest levels of demand since September 2012.  The BTC was 2.98 in February, but as low as 2.42 in December.  The average of the past 4 is 2.65

    The yield can be measured against the 1pm yield level of 5yr When-Issued trading.  It's currently at 1.73-1.731, though may change in the next few minutes.  If the high yield is lower than that, it's a net-positive for bond markets in general, and vice versa if it's higher.

    More background info on auction watching HERE.

    Category: MBS, UPDATE
    Share:   
  • 3/26/14

    As with so many economic data releases, today's Durable Goods report has a "headline" and "internal components."  The headline is simple enough; just "durable goods orders."  The components are essentially the building blocks for the headline, or some combination of those building blocks meant to filter out some level of volatility in the data. 

    For instance, if we know that a large portion of the headline is accounted for by aircraft manufacturing, and defense spending, and if we know that these two components can vary greatly from month to month, we may well be interested to know how Durable Orders fared without contributions from those two components.

    Indeed this is one of the most closely watched internal readings in the report--the "Nondefense Ex-Air."  Simply put, it's Durable Goods minus aircraft manufacturing and defense spending.  It's interesting today because it fell by 1.3 percent compared to a forecast gain of 0.7 percent.  It was also revised down to +0.8 in January from +1.5 previously.

    For the most even-keeled component of the report to miss by that much AND to be revised so much lower is a more meaningful consideration for markets than the headline Durable Goods reading of +2.2.  As such, markets are able to overlook the stronger-than-expected headline and Treasuries/MBS are permitted a moderately-sized morning rally.

    This morning, it takes Fannie 4.0s into positive territory, currently up 2 ticks on the day at 103-28 after opening 1 tick lower at 103-25. 

    Category: MBS, UPDATE
    Share:   
 
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