So far this AM

  • SHANGAI +4.79%, HANG SENG +1.23%, KOSPI +0.37%, FTSE +0.20%, DAX +0.30%, CAC +0.22%
  • NIKKEI -0.64%, TOPIX -0.74%,
  • US JOBLESS CLAIMS RELEASED: 570,000 Initial Jobless Claims. More than 560,000 Reuters Survey expected...less then last week's revised 574,000. Pretty much "on the screws"
  • FN 4.5 -0-06 at 100-22. GN 4.5 -0-07 at 100-18
  • Since yesterday's close, US Stock futures are higher, albeit a bit less higher after jobless claims data. TSY futures (YELLOW) moved lower overnight, briefly spiked higher after data, now back to pre-release price levels.

Recap of Yesterday

  • ADP says 298,000 jobs cut in Aug. Higher than anticipated. Market didnt react to data.
  • Productivity revised higher. Those who still have jobs want to keep them!
  • Durable Goods +4.5%. Factory Orders +1.3%
  • FOMC says economy will be slow to recover, still vulnerable to shocks. Small/medium size banks exposed to commercial real estate weakness. More bank failures looming?
  • TSYs benefit from flight to safety holding pattern ahead of NFP report. 10 yr falls as low as 3.28
  • 2s/10s section of yield curve slightly steeper. 10/30s slightly flatter.
  • Fed buying Up in Coupon MBS again...5.0s and 5.5s. This supply not coming from originators...more a function of rally on yield curve (need to add duration/protect against prepays...seasoned pool BWIC 
  • Originators selling 4.5 MBS coupons...results in 5.0% (ish) mortgage rates down the road.
  • Many lenders repriced for better, a few for the worse near close.
  • All in all mortgage rates holding steady near summer lows thanks to the much appreciated trend channel "rate sheet influential" MBS coupons have traded in lately...(note we have fallen outside that channel this morning)

The Day Ahead

  • READ MND's DAY AHEAD COMMENTARY
  • Will History Repeat Itself...MG explores long term technical rates trends. A MUST READ!
  • Too far too fast in fixed income or more room to run? Following the recent rates rally, we would normally expect yields to back up a few bps (increase) as market participants flatten positions ahead of NFPs tomorrow morning (heading into TSY auctions next week). HOWEVER...given the recent stubborn sentiment of TSYs to ignore all normally bearish signs...we wouldnt be surprised to see the 10 yr fall below 3.30 again...come on 3.26!!!)
  • Look for choppy action until trader's find comfortable 10yr yield level between 3.26 and 3.36
  • If rates keep on rallying, down in coupon will become necessity for many MBS investors (UIC= TOO RICH as 5.5s through 7.0s running negative LOAS). This is a positive for "rate sheet influential" MBS coupons!
  • The timing of such a "down in coupon" rally may however be delayed until after tomorrow's Employment Report prints. Until then MBS trading will likely be slow (watching for originator selling though).
  • That said...we expect to take our directional cues from benchmark big brothers. TSY prices lower, MBS prices lower. TSY yields higher, MBS yields higher.
  • What many really want to know....lenders will likely be defensive ahead of tomorrow's job data/long weekend ahead/market going back to work (summer session almost over!!!)...so dont be surprised to see less then expected rebates on rate sheets....still near summer rate lows though!

MBS, TSY, LIBOR QUOTES

Current Coupon: 4.36%