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MBS RECAP: 2018 Comes Out Swinging

By: Matthew Graham
Posted Tue, Jan 2 2018, 5:43 PM

Bond markets have had worse days, but the average day is definitely better than today.  10yr yields moved more than 5bps higher, bringing them to 2.462%, just shy of the important 2.47% technical level.  Just to show they weren't afraid to test those waters, intraday yields were as high as 2.4815.  Fannie 3.5 MBS (the coupons with the most relevance for mortgage rates) fared much better, losing only 5/32nds of a point (in price) versus a comparable loss  of half a point for 10yr Treasury notes (again, in PRICE, not YIELD).

There were no significant economic reports or market moving headlines in play.  All of the drama came courtesy of incidental "new year" trading.  This can include things like money managers making portfolio adjustments after being forced to show a certain balance of bonds at the end of 2017 as well as opportunistic traders piggybacking on those trades for a quick profit. 

Additionally, the corporate bond market fired back up today after 3 customary weeks off at the end of December.  Corporate bond issuance tends to put some pressure on rates because it creates additional issuance in bond markets that competes with Treasuries and MBS.  Also, corporate bond yields use Treasuries as an index.  Thus, corporations can hedge their interest rate risk by selling Treasuries (bad for rates) at the time of issuance.  

All that having been said, we're not necessarily seeing a definitive bond market stance for the year.  It's too soon for that.  It COULD be the case that the momentum that ends up taking shape in January is similarly negative, but if that happens, it wouldn't have anything to do with today.  Still, today is/was unpleasant.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
102-18 : -0-05
Treasuries
10 YR
2.4615 : +0.0505
Pricing as of 1/2/18 5:42PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:35PM  :  ALERT ISSUED: If You Were Floating...
11:17AM  :  ALERT ISSUED: Negative Reprices Becoming More Possible/Likely
9:57AM  :  ALERT ISSUED: Bonds at Weakest Levels After NYSE Open

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Mike Christensen  :  "You should be both"
Sung Kim  :  "agreed"
B C  :  "both"
Sung Kim  :  "cornered or concerned?"
B C  :  "i feel frightened and cornered"
B C  :  "ok you are scaring me"
Matthew Graham  :  "
MBS Live Alert Issued
If You Were Floating..."
Sung Kim  :  "BOUNCE?"

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