Bond markets made a quick head fake in a weaker direction following the better-than-expected Consumer Sentiment release at 9:55am, but must have quickly remembered that it's Europe, and not the domestic consumer, that's at the heart of the ongoing epic flight-to-safety. Indeed, today is one of those days where bond markets and the European currency are very well linked-up, the latter taking it's first major cue of the morning on news out of Spain that its wealthiest province officially asked for help from the Spanish government to service its debt. Since then, the Euro fell to test a technical boundary at 1.25, which set up the lows that began the ensuing range trade with the highs ostensibly inspired by levels immediately preceding the Spain news. It's all right here in this chart...
And if you've seen a chart of the Euro today, you've basically seen a slightly less muted version of the Treasury chart, and MBS is simply another slightly-muted degree of separation from Treasuries. Things have been sideways and boring since the Euro bounced just before 10am. Unless acted upon by significant outside influences, they're likely to stay that way for the next 2 hours and change into the early close at 2pm Eastern.
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ECON: Consumer Sentiment Highest Since 2007
* Consumer Sentiment at 79.3 vs 77.8 consensus/previous
* Current Conditions 87.2 vs 87.1
* Expectations 74.3 vs 71.5
* Main Index highest since 10/2007
* current conditions highest since Jan 2008
* expectations highest since July 2007
(Reuters) - U.S. consumer sentiment rose to its highest level in more than four years in May as Americans stayed optimistic about the job market, while higher income households expected to see bigger wage increases, a survey released on Friday showed.
The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment rose to 79.3 from 76.4 in April, topping forecasts for 77.8 and an initial May reading of the same. It was the highest level since October 2007.
"Unfortunately, consumer confidence is still extremely vulnerable to a reversal, as occurred in the past two years," survey director Richard Curtin said in a statement. "While their most optimistic expectation for job growth could go unfulfilled without much harm, if the recent slowdown in job growth persists in the months ahead, it could form the basis for a third retreat in confidence."
Bond Markets Open Flat, But Move Stronger on Spain Headline
Early in the overnight session, we made note of the fact that the technical range trade appeared to be green-lighted as the first few hours of Asian trading gave us our 2nd big bounce off one of the trendlines in the "triangle." We updated that chart in The Day Ahead
Things chopped around a bit overnight, with yields actually rising back up PRECISELY in line with the same trendline again around 4:30am ET, further reinforcing the technical guide-rails leading us into next week. But as that technical bounce was already helping yields moderate, a Reuters wire out of Spain indicated the wealthiest autonomous Spanish region of Catalonia is running out of debt servicing options and needs the Spanish government to step in according to the region's president.
That inspired the biggest jolt of volume of the morning, and the quickest pace of improvement for domestic debt markets. The Euro fell to fresh multi-year lows and 10yr Treasuries fell a quick 2 bps from 1.77 to 1.75 and now trade slightly lower at 1.746. Fannie 3.5 MBS added a few ticks on the news as well, bringing the grand total to 6/32nds on the day at 104-13.
Apart from the ongoing possibility of European headlines, the only remaining scheduled economic data is the 9:55am release of Consumer Sentiment. A major deviation from expectations could cause some movement, but we're not expecting a tremendous reaction otherwise.
Bond markets close early today at 2pm ET.
Live Chat Featured Comments
Ted Rood : "-- The yield on Spain's 10-year government bonds shot higher on Friday after the president of one of the country's autonomous regions reportedly said it would need help from the government to refinance debt this year. Catalan President Artur Mas told a group of foreign reporters that Catalonia is running out of options. "We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills," Mas reportedly said. Who knew?????"
Adam Quinones : "lots of folks taking half days"
Ted Rood : "What else is new? Traders are all gone for the weekend already."
Adam Quinones : "Street seems sleepy today"
Andrew Horowitz : "some know that there is a problem but they do not understand the magnitude of the issue"
Andrew Horowitz : "sad to say this, but the average American is oblivious to the events that are unfolding across the pond"
Matthew Graham : "'collapse' may be too strong a word"
Matthew Graham : "yeah, it's crazy that US sentiment is the best since 2007 and we're on the brink of global financial "something or other""
Geoff Allison : "I second MH."
Matt Hodges : "I'm confident that will break lower next month with the EU imploding"
Matthew Graham : "RTRS - EXPECTATIONS INDEX AT HIGHEST SINCE JULY 2007 "
Matthew Graham : "RTRS - CURRENT CONDITIONS INDEX AT HIGHEST SINCE JAN 2008 "
Matthew Graham : "RTRS - INDEX AT HIGHEST SINCE OCT 2007"
Matthew Graham : "RTRS - 12-MONTH ECONOMIC OUTLOOK INDEX FINAL MAY 91 VS PRELIMINARY MAY 88 "
Matthew Graham : "RTRS - EXPECTATIONS INDEX FINAL MAY 74.3 (CONSENSUS 71.5) "
Matthew Graham : "RTRS - THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX FINAL MAY 87.2 (CONSENSUS 87.1) VS PRELIMINARY MAY 87.3 "
Matthew Graham : "RTRS - THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT FINAL MAY 79.3 (CONSENSUS 77.8) VS PRELIMINARY MAY 77.8 "
Andrew Horowitz : "Euro is the proverbial falling knife"
Matthew Graham : "FYI, 1.250 had been a technical support level for the EUR= and potentially some sort of "cleansing" cue for technicians or strike price for options. It poked briefly down to 1.2495 around 20 minutes ago and has been picking up steam on a relative lack of data, now at 1.2535. That's what's behind the current bounce in bond markets, and I'm watching to see if it breaks back through pre-Spain-Headline levels or if it retests 1.250, and the concomitant reaction in bond markets. So far, hitting a"
MMNJ : "i was just thinking the same think Mike"
Mike Drews : "Nice to not see a selloff the day before a 3 day weekend for once"
Matthew Graham : "that makes things pretty simple re: y'day's "on again off again" headlines about Euro-zone officials' requests for member states to work on contingency plans."
Matthew Graham : "RTRS- FRENCH BANKS DRAWING UP GREEK EURO ZONE EXIT CONTINGENCY PLANS-SOURCES "
Jason Harris : "Victor...if I am not mistaken 20% is correct...at least that is how our u/w goes on IRRL"
Matthew Graham : "RTRS- SPAIN'S CATALONIA REGION NEEDS GOVERNMENT HELP, RUNNING OUT OF DEBT FINANCING OPTIONS-CATALAN PRESIDENT "
Matthew Graham : "Best I can see, there may be some "cause and effect" between the sharp-ish move lower in 10yr yields at 8:27am and the following wire:"
Jason York : "i believe so, but check the handbook, need the link?"
Victor Burek : "so if less than 20%, i'm good?"
Jason York : "no, you can go to 15 year, I think if it increases 20%, then you may have to show income"
Victor Burek : "can you do a va irrl from 30 year to 15yr..or is it the same as fha streamline where you are required to show lower payment?"
Scott Valins : "first three day weekend since mid-Feb. longest gap on the calendar. man will this be nice..."