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You are viewing Micro News from Wednesday, May 14, 2014 - View all recent Micro News
  • 5/14/14
    Yet Another Leg Up For MBS; More Positive Reprice Potential

    MBS have done more to get caught up to Treasuries this afternoon after losing ground into 11am.  Keep in mind this reference to "losing ground" only applies to the pace at which both MBS and Treasuries have been improving.

    10yr yields put in their lows just after 12:30pm at 2.525.  MBS hit their highs at the same time but have since gond on to add 2 more ticks.  If you haven't yet seen a positive reprice, it's highly likely.  Certainly, positive reprices are justified based on MBS movements, but lenders also have to be careful about about lock fallout.

    Category: MBS, UPDATE
    Share:   
  • 5/14/14
    Snowball Buying for Bonds as Treasuries Break 2014 Lows

    MBS are great and all, but when it comes to motivating a quick, forcefull bout of snowball buying, "new 2014 MBS highs" aren't even in the same league as "new 2014 yield lows" in Treasuries, especially when that occurs at the same time that stocks are making a quick move lower at the open.

    Such was the case at today's stock market open.  As 10yr yields broke below 2.57, buying ramped up exponentially.  The stock-market correlation is definitely NOT the main story here.  The surge was centered on the technical break of the morning's previous lows.

    Even that technical break isn't really the big story in the bigger picture.  The morning, the week, and the month continue to be most inspired by overseas markets.  Ukraine headlines may be a part of this, but the biggest news is definitely the gathering storm (of monetary policy easing) at the ECB.  Take a look at how Germany's 10yr has fared against Treasuries.  This chart sets the two to the same highs and lows in April and early May so we can observe how they've moved relative to each other in the past week.  It's pretty clear where the extra downward pressure on rates is coming from.

    2014-5-14 Treasuries vs Bunds

    This, of course, synergizes with the 'snowball buying' mentioned in the last alert.  "Like begets like," and all that...

    10's are currently down to 2.546.  MBS are woefully underperforming, and we wouldn't expect them to keep pace on these sorts of moves where motivation is coming from Europe and snowball buying.   Versus the 20 tick price gain in 10yr yields, MBS are up only 9 ticks in Fannie 3.5s.  Still, those are the best levels of the year, and should result in a few positive reprices when the rally levels off. 

    Category: MBS, UPDATE
    Share:   
  • 5/14/14
    Bond Markets Pushing Best Levels of 2014 After ECB News

    This morning's rally is all about the European Central Bank (ECB).  The prospects for monetary policy accommodation in Europe have been ramping up for weeks and came to a head last Thursday when Draghi all but promised "action" at the next meeting. 

    Yesterday's news that the German central bank (Bundesbank) wasn't opposed to the idea made Draghi's promise even more believable.  The Bundesbank, which can essentially impose its will on the rest of the European central banking system, had previously been vocal in its opposition of easing, especially as it concerned asset purchases.

    Now today, a Reuters exclusive spells out how the ECB is "readying a package of rate cuts and targeted measures."  Among those targeted measures are the same Long-Term Refinancing Operations (LTROs) that boosted bond markets in 2011-12 as well direct purchases of Asset-Backed-Securities (ABS), which would be comprised mainly of pools of loans to small/mid-sized businesses.  The goal there is to more directly stimulate economic activity by promoting lending to smaller businesses--seen in Europe as a more effective approach than buying government debt and MBS. 

    With that news as the backdrop, European bond markets rallied sharply overnight, bringing Treasuries along for the ride.  Following yesterday's surprise Retail-Sales-inspired rally, bond markets were even more susceptible to "snowball buying."  Another way to think about that would be to consider that traders generally agreed rates would take at least a short term trip higher, but were forced to cover those bets with yesterday's reaction to the data.  Bets on higher rates are "covered" by buying bonds.  The more bonds bought, the lower rates go, and the lower rates go, the more traders' stop-loss levels get triggered, resulting in more buying.  It's a beneficial cycle for us in the short term, but lacks a solid reassurance about the longevity of the move.

    For a split second this morning, 10yr yields hit their lowest levels of the year, but are effectively still prodding the 2014 floor at 2.57 (this morning saw 2.5677, and we're currently at 2.5766).  Fannie 3.5s opened at their roll-adjusted highs of the year, up 6 ticks at 102-06.  They're currently up 4 at 102-04.  A much hotter-than-expected Producer Price Index has almost no effect on this morning's trading.  This is very much in line with the multi-year theme of not giving a damn about high level inflation data.  That could start to change soon, but we're not there yet.

    Category: MBS, UPDATE
    Share:   
 
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  • 5/14/14

    MBS have done more to get caught up to Treasuries this afternoon after losing ground into 11am.  Keep in mind this reference to "losing ground" only applies to the pace at which both MBS and Treasuries have been improving.

    10yr yields put in their lows just after 12:30pm at 2.525.  MBS hit their highs at the same time but have since gond on to add 2 more ticks.  If you haven't yet seen a positive reprice, it's highly likely.  Certainly, positive reprices are justified based on MBS movements, but lenders also have to be careful about about lock fallout.

    Category: MBS, UPDATE
    Share:   
  • 5/14/14

    MBS are great and all, but when it comes to motivating a quick, forcefull bout of snowball buying, "new 2014 MBS highs" aren't even in the same league as "new 2014 yield lows" in Treasuries, especially when that occurs at the same time that stocks are making a quick move lower at the open.

    Such was the case at today's stock market open.  As 10yr yields broke below 2.57, buying ramped up exponentially.  The stock-market correlation is definitely NOT the main story here.  The surge was centered on the technical break of the morning's previous lows.

    Even that technical break isn't really the big story in the bigger picture.  The morning, the week, and the month continue to be most inspired by overseas markets.  Ukraine headlines may be a part of this, but the biggest news is definitely the gathering storm (of monetary policy easing) at the ECB.  Take a look at how Germany's 10yr has fared against Treasuries.  This chart sets the two to the same highs and lows in April and early May so we can observe how they've moved relative to each other in the past week.  It's pretty clear where the extra downward pressure on rates is coming from.

    2014-5-14 Treasuries vs Bunds

    This, of course, synergizes with the 'snowball buying' mentioned in the last alert.  "Like begets like," and all that...

    10's are currently down to 2.546.  MBS are woefully underperforming, and we wouldn't expect them to keep pace on these sorts of moves where motivation is coming from Europe and snowball buying.   Versus the 20 tick price gain in 10yr yields, MBS are up only 9 ticks in Fannie 3.5s.  Still, those are the best levels of the year, and should result in a few positive reprices when the rally levels off. 

    Category: MBS, UPDATE
    Share:   
  • 5/14/14

    This morning's rally is all about the European Central Bank (ECB).  The prospects for monetary policy accommodation in Europe have been ramping up for weeks and came to a head last Thursday when Draghi all but promised "action" at the next meeting. 

    Yesterday's news that the German central bank (Bundesbank) wasn't opposed to the idea made Draghi's promise even more believable.  The Bundesbank, which can essentially impose its will on the rest of the European central banking system, had previously been vocal in its opposition of easing, especially as it concerned asset purchases.

    Now today, a Reuters exclusive spells out how the ECB is "readying a package of rate cuts and targeted measures."  Among those targeted measures are the same Long-Term Refinancing Operations (LTROs) that boosted bond markets in 2011-12 as well direct purchases of Asset-Backed-Securities (ABS), which would be comprised mainly of pools of loans to small/mid-sized businesses.  The goal there is to more directly stimulate economic activity by promoting lending to smaller businesses--seen in Europe as a more effective approach than buying government debt and MBS. 

    With that news as the backdrop, European bond markets rallied sharply overnight, bringing Treasuries along for the ride.  Following yesterday's surprise Retail-Sales-inspired rally, bond markets were even more susceptible to "snowball buying."  Another way to think about that would be to consider that traders generally agreed rates would take at least a short term trip higher, but were forced to cover those bets with yesterday's reaction to the data.  Bets on higher rates are "covered" by buying bonds.  The more bonds bought, the lower rates go, and the lower rates go, the more traders' stop-loss levels get triggered, resulting in more buying.  It's a beneficial cycle for us in the short term, but lacks a solid reassurance about the longevity of the move.

    For a split second this morning, 10yr yields hit their lowest levels of the year, but are effectively still prodding the 2014 floor at 2.57 (this morning saw 2.5677, and we're currently at 2.5766).  Fannie 3.5s opened at their roll-adjusted highs of the year, up 6 ticks at 102-06.  They're currently up 4 at 102-04.  A much hotter-than-expected Producer Price Index has almost no effect on this morning's trading.  This is very much in line with the multi-year theme of not giving a damn about high level inflation data.  That could start to change soon, but we're not there yet.

    Category: MBS, UPDATE
    Share:   
 
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