Recap of Yesterday

  • TSYs followed Friday's price action with another rates sell off...albeit in low volume in both sessions (low volume = new norm?)
  • Long end of yield curve takes worst beating...no floor in that sector of curve (low volume)
  • 2/10s steeper. 10/30s flatter
  • No follow through of last week's TSY rally...indicates range trade persists
  • TSY traders acting on supply/demand technicals...day trader's paradise. DONT TRY TO MAKE SENSE OF THE MOVES...we are watching high volume marks/market profile
  • Stocks reverse overnight selling. S&P makes new 2009 high....stocks reversed sentiment on no data? It's a traders world...
  • 4.0s and 4.5s lose the most. FN 4.0 -0-11, FN 4.5 -0-08. (To be expected when long end of curve takes a beating)
  • MBS/TSY yield spreads tighter in rate sheet influential coupons, wider in fuller coupons
  • Over $2 bn in originator selling yesterday. Fed takes care of supply
  • No Asian bid in marketplace...no big deal until they aren't buying when we'd normally be buying (Chinese central bank not  day traders)
  • MBS volume about the same as its been for the last 30 days...
  • Cheaper prices good for rate sheet influential MBS

So far this AM

  • FTSE +0.78%, CAC +0.92%, DAX +0.50%, NIKKEI +0.15%, HANG SENG -0.31%, TOPIX -0.16%, SHANGHAI +0.23%
  • 830 domestic data was not bond friendly. PPI higher than expected, retail sales and NY Manufacturing better than anticipated..
  • Producer Price Index: + 1.7% vs. consensus +0.8% and prior -0.9%
  • Core Producer Price Index (less food and energy):  +0.2% vs. +0.1% consensus and -0.1% prior
  • Retail Sales: +2.7% vs. +2.0% consensus  and -0.1% prior
  • Retail Sales ex autos: +1.1% vs. +0.4% expected and -0.6% prior
  • Empire Manufacturing: 18.88 vs. expected 14.00

Following the data...

The dollar is stronger, oil is cheaper, stock futures are higher, and TSY futures are lower...

After falling as far as 100-06, the FN 4.5 is -0-06 at 100-12....

2s vs 5s: 146bps

2s vs 10s: 252bps

5s vs. 10s: 106bps

10s vs. 30s: 81bps

The Day Ahead

  • READ MND THE DAY AHEAD
  • Fed buys TSYs this morning. Feb 2020 to Feb 2026
  • Class B MBS notification begins
  • Range Trading persists...low volume too? We think so...dont see what would bring money off sidelines.
  • Real money likes cheaper MBS dollar prices

MBS, TSY, LIBOR QUOTE