Make no mistake that this morning's economic data has been of little to no concern to bond markets which have instead favored European headlines and structural trading around the Fed's scheduled "Twist" buying in the 30yr sector. Before the news that Spain approved bank liquidity plan led yields sharply higher around the 10am time frame, morning weakness for bond markets was more incidental and technical with word of a large seller having a distorted impact on prices due to the low volume. Bond markets leveled off of their own volition just before the Fed buyback and have emerged slightly stronger on the other end. 10yr yields paid noticeable attention to the 1.50 technical level in that they moved abruptly higher after breaking it and abruptly lower back to it when Fed buying concluded. They've since "bounced" against 1.50 as a ceiling several times. So far so good there, and MBS agree with Fannie 3.0's back very close to unchanged at 103-15.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 11:08 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
MBS Hit Lows As 10yr Yields Break the 1.5 Technical Ceiling
A mini surge in the "risk on" trade is underway, led by the Euro after Spain approved an expected liquidity mechanism and confirmed that the its regions would continue to guarantee loans received by the mechanism. The Euro shot abruptly higher, having moved from below yesterday's lows to above yesterday's highs in less than an hour.
This helped coax 10yr yields over an important short term technical ceiling at 1.50. 10's quickly moved higher to the mid 1.51's and MBS hit their lows of the morning at 103-10. There may be some small chance of negative reprice risk for lenders who happened to be out with pricing already this morning, but the overall narrow range on the 2-day chart greatly exaggerates the scope of today's move. We've only seen 6 ticks from highs to lows, not to mention that Fannie 3.0s have a decent history of support back to July 6th at 103-08, and moving progressively higher (103-09 on Monday and Wednesday) to 103-10 today.
ECON: Consumer Sentiment Slightly Lower Than Expected
The first reading on Consumer Sentiment in July came in at 72.0, slightly lower than June's final reading of 73.2. Economists surveyed by Reuters were expecting 73.4.
The declines were led by the 'expectations' component of the index which fell to 64.8 from 67.8 in June. The '12-month outlook' as well as the inflation components also supported the lower headline.
The only notable improvement versus June's report was seen in the 'current conditions' component which rose to 83.2 from 81.5 in June.
Bond Markets Under Some Pressure From Stocks After Apathetic Overnight Session
Treasuries trended generally higher in the overnight session, but by such small amounts that the longer term downtrend in yields remained unbroken. That trend began essentially with the month of July and has been leading yields lower and in a narrower range ever since. Either today or early next week, the downward-sloping triangle runs out of room, either suggesting a bearish break higher out of the trend or an upcoming test of all-time lows for 10yr yields.
After the start of domestic trading, Treasuries and MBS have both been relatively sideways after a bit of weakness at the open. Volumes have been low and correlation to news, events, and related markets has been light. To some extent, Treasuries have discounted the cash open for equities markets, as they often do, but now with S&P's up a quick 6-8 points at the open, Treasuries aren't giving much chase.
That seems to be in line with the generally sleepy feeling exuded by markets in the overnight session and into this morning. For now, the high 1.49's look like a supportive ceiling for 10yr yields and MBS have been generally holding on to a 103-13 level in Fannie 3.0's. If 10's break above 1.50, we could also see support break down for MBS
Apart from the ongoing surge in stocks, the next piece of data helping to inform that decision is Consumer Sentiment at 9:55am, which is also the last piece of economic data of the morning and week.
ECON: Producer Price Index Higher Than Expected, Core Unchanged
* June PPI +0.1 vs -0.5 consensus and -1.0 last time.
* Core +0.2 as expected. Year-over-year unch'd at +2.6
The Producer Price Index for finished goods increased 0.1 percent in June, seasonally adjusted,
the U.S. Bureau of Labor Statistics reported today. Prices for finished goods moved down 1.0
percent in May and declined 0.2 percent in April. At the earlier stages of processing, prices
received by manufacturers of intermediate goods decreased 0.5 percent in June, and the crude
goods index fell 3.6 percent. On an unadjusted basis, prices for finished goods advanced 0.7
percent for the 12 months ended in June, the same rate as in May.
Live Chat Featured Comments
Andy Pada : "All anti-big government fans should applaud this settlement agreement. Potential fair housing issues settled and a corporation chooses to self-regulate itself."
Andy Pada : "only requires an internal review of retail mortgage lending"
Andy Pada : "no language on limiting counterparty risk"
Andy Pada : "Setlement requies Wells to simply "to conduct an internal review of retail mortgage lending.""
Matthew Graham : "The question was more about whether or not the shutting down of wholesale was in some way beneficial to the settlement, even if not required by it. That's the letter of the law with which I'm unfamiliar (i.e. could such a thing be a factor without being explicitly known by the public?)"
Adam Quinones : "does it require they limit counterparty risk?"
Andy Pada : "Read the DoJ's press release on settlement and settlement does not require the shutting down of wholesale. "
Joel Marks : "my Wells rep said they were told the govt was going to make them equally liable for any misdeeds by brokers on a Wells transaction. Too much risk so they shut it down. Half my loans go there, so it's pretty crushing for me."
Matthew Graham : "RTRS - SPAIN ECONOMY MINISTER SAYS SPAIN'S REGIONS WILL KEEP GUARANTEEING LOANS RECEIVED BY NEW FUND"
Darren Costa : "victor is right, PR move, small portion of thier business and they can get more volume then they can handle on the correspondent side."
Matthew Graham : "RTRS- SPAIN ECONOMY MINISTER SAYS APPROVES LIQUIDITY MECHANISM TO EASE REGIONS' FUNDING "
Matthew Graham : "Consumer Sentiment causing market movements is a trap. Here's the real mover:"
Victor Burek : "PR move"
Jason York : "quite possibly it was "strongly encouraged""
Brent Borcherding : "Even the DOJ isn't going to force a company into a settlement that makes them shut down a legal portion of their business, costing jobs."
Matthew Graham : "THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION EXPECTATIONS AT LOWEST SINCE OCTOBER 2010 "
Matthew Graham : "THOMSON REUTERS/U. OF MICH CONSUMER SENTIMENT INDEX AND EXPECTATIONS INDEX BOTH AT LOWEST SINCE DECEMBER 2011 "
Matthew Graham : "THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT PRELIMINARY JULY 72.0 (CONSENSUS 73.4) VS JUNE FINAL 73.2 "
Matthew Graham : "yeah, that's what I'm saying. I don't think it really could be unless someone can explain otherwise, considering well explicitly said it was "not part of the settlement""
Brent Borcherding : "It is not part of the settlement."
Matthew Graham : "I'm not a lawyer, nor do I play one on TV, so I don't know whether or not it could have been part of a settlement without that fact being explicitly broadcast. I can't really assume anything beyond the "PR move" at best. And at worst, it's just a convenient timing issue for something they wanted to do anyway, as some suggested y'day."
Matthew Graham : ""indirect" being the operative word"
Matthew Graham : "Bob, all I saw was additional confirmation for my confusion as she said: "as an indirect result of ongoing litigation that reached a settlement.""
Steven Stone : "i have nightmares of the CFPB showing up in their funny uniforms with CFPB arm bands"
Steven Stone : "seems like we end one compliance audit and start the next"
Robert Rippy : "My AE said in her email that it was part of ongoing litigation in Washington that reached a settlement."
Ted Rood : "Well, heck of coincidence it was announced 7 minutes before settlement was."
Matthew Graham : "I never saw that explicitly stated, just implied, but admittedly, stopped reading after the 17th article"
Matthew Graham : "is it confirmed that was part of a settlement? "
Michael Gannon : "yesterday that came out....part of a settlement "
Robert Rippy : "I may be late with this information since I haven't been in here lately but I just got an email from my Wells account exec saying they were exiting the wholesale business. Is that old news?"
Michael Gannon : "I think we will be extra tied to the stock lever today"
Adam Quinones : ",,.or we could go totally sideways. Here's to that option!"
Adam Quinones : "beware of a lack of liquidity....desks won't be looking to get in front of any sizable flows. That means we could see whippy price action."
Adam Quinones : "...so quiet mkt day doesnt mean quiet reprice day."
Matthew Graham : "depends on the will of those left at work, and the instructions of those that aren't."
Adam Quinones : "does quiet mean sideways/calm though"
Andrew Horowitz : "first non 95+ friday on the east coast in a while MG, desks should be vewy vewy qwiet today"
Matthew Graham : "yawn... trading looks sleepy today."
Matthew Graham : "RTRS - U.S. JUNE PPI RESIDENTIAL ELECTRIC POWER -2.1 PCT, BIGGEST DROP ON RECORD "
Matthew Graham : "RTRS - U.S. JUNE PPI EXFOOD/ENERGY +0.2 PCT (CONS +0.2 PCT) VS MAY +0.2 PCT "
Matthew Graham : "RTRS - U.S. JUNE PPI +0.1 PCT (CONSENSUS -0.5 PCT) VS MAY -1.0 PCT "