The overnight session was generally positive for bond markets as the looming US election and general European uncertainty both offer reasons for markets to stay cautious to start the week. We're aware of the notion that a Romney victory is the more bullish eventuality for equities markets while an Obama victory is the more bullish scenario for MBS and bond markets. This would be an easy way to explain Friday's paradoxical price action, but we're not sure how much we'd agree with it until we see how things pan out tomorrow. We'd suspect that others share this attitude, suggesting a "wait and see" approach. Where then to turn for additional guidance? Europe seems appropriate enough. Seemingly important events ramp up this week with austerity votes galore and a Eurogroup meeting on Thursday. The whole EU saga seems to roll fairly regularly between risk-on vs risk-off waves and we're in the midst of a "risk-off" variety (good for domestic bond markets), but one that has an uncertain duration, likely to be informed by the week's events.
MBS Pricing Snapshot
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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
ECON: ISM Non-Manufacturing Weaker Than Expected, But Employment Improves
- Headline PMI +54.2 vs 54.7 Consensus, 55.1 Previous
- Most internal components declined by several points
- Notably, the Employment component rose from 51.1 to 54.9
- Employment component highest since March
- Overall Business Activity lowest since June
"The NMI registered 54.2 percent in October, 0.9 percentage point lower than the 55.1 percent registered in September. This indicates continued growth this month at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55.4 percent, which is 4.5 percentage points lower than the 59.9 percent reported in September, reflecting growth for the 39th consecutive month. The New Orders Index decreased by 2.9 percentage points to 54.8 percent. The Employment Index increased by 3.8 percentage points to 54.9 percent, indicating growth in employment for the third consecutive month. The Prices Index decreased 2.5 percentage points to 65.6 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI™, 13 non-manufacturing industries reported growth in October. The majority of the respondents' comments reflect a positive but guarded outlook on business conditions and the economy."
Bond Markets Open At Strongest Levels In Nearly Three Weeks
10yr yields traded under 1.68 and Fannie 3.0s moved over 105-00 earlier this morning, hitting levels not seen October 15th. An hour into the domestic session, MBS are still holding the 105's while 10's have edged up into the 1.69's, still lower than all but a few minutes of trading over the past three weeks.
In a general sense, Europe was the clear mover overnight with German Bunds rallying shortly after the open on a pick-up in Greece/Spain concerns. But domestic election front-running is also a potential factor as some consensus builds that an Obama victory is a "risk off " (and by consensus, we mean that we've heard it mentioned somewhere other than our list of hypothetical market movers)
A lot of the week comes down to the concept of "voting." Of course there's the presidential vote on Tuesday, but there are several key votes coming up in Europe as well. A key austerity package vote on Wednesday, a smaller prelude to that in Greece today, a potentially pivotal Eurogroup meeting concerning Greece on Thursday and a more important Troika report next week are all market-moving considerations for Europe.
Whether bond markets are more interested in trading the election outcome (or perceived election outcome in advance of it being a known quantity), or the various uncertainties in the EU, is tough to know for now. But not only will it get progressively easier to know as the shoes start dropping, they're both bond-market-positive for now.
Live Chat Featured Comments
Matt Hodges : "i'm not surprised with election tomorrow, guys"
James F : "I strongly agree, Bryce"
Bryce Schetselaar : "My rates aren't coming out that much better if at all better than Friday. Anyone seeing the same thing?"
Matthew Graham : "RTRS - DEAL ON NEW BAILOUT MONEY FOR GREECE UNLIKELY ON NOVEMBER 12, STILL EXPECTED THIS MONTH - EU SOURCE "
Matthew Graham : "RTRS - ISM NON-MANUFACTURING EMPLOYMENT INDEX AT HIGHEST SINCE MARCH "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX AT LOWEST SINCE JUNE "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING EMPLOYMENT INDEX 54.9 IN OCTOBER VS 51.1 IN SEPT "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX 55.4 IN OCTOBER (CONSENSUS 59.5) VS 59.9 IN SEPT "
Matthew Graham : "RTRS- ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 54.2 IN OCTOBER (CONSENSUS 54.7) VS 55.1 IN SEPT "
Mike Drews : "so far, looks like about .3 better from friday"
Mike Drews : "thinking about locking everything up today"
Gus Floropoulos : "rate sheets looking good"
Ira Selwin : "DK - you may want to wait to see how things turn out with the storm on Wed/Thur"
Dennis Lykins : "went thru the reinspection route in LA in 1994. Had 148 on my list."
Daniel Kramer : "Luckily just close out half the pipeline before the storm and have a bunch of new loans that the appraisal was done yet so those don't ave to be re inspect yet of course"
Ira Selwin : "That's it?"
Daniel Kramer : "Time to start ordering a dozen re-inspections. Fun "
Gus Floropoulos : "still in an obvious upward trend in tsy yields. "
Gus Floropoulos : "testing the lower end of the range....wonder if we can break on through"
Victor Burek : "gm, welcome back 105"
Sam : "thats petty sad Ira...oil supply is up and we have certain areas left without."