As expected, the 10yr Treasury auction didn't pack its traditional level of market-moving punch with the relatively much more important FOMC events looming in the near future. The auction results provided a good opportunity to confirm that. Reason being: the auction was strong, with only slightly below average bid-to-cover, but strong direct bidding and a substantially lower-than-expected yield. Under normal circumstances, such results would have resulted in a more marked shift into rally mode for 10's. As it stands, there was a brief blip into positive territory followed by a return to relative flatness--simply waiting to see what the Fed has to say at 12:30pm.
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 11:04 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
Bond Markets Hovering Near Unchanged Levels, FOMC Looms
Treasuries tread water for the first few hours of the overnight session, but began rising in yield with German Bunds just after 2:30am. The tone was moderately supportive for peripheral markets as Italy had a decent 1yr debt auction. But while tightening peripheral spreads (Italian/Spanish/Greek/etc. debt yields moving closer to German benchmarks) generally coincide with weakness in the Core, higher Treasury yields overnight look to be a function--at least in part--of the impending big ticket events in today's session.
There's good technical evidence for this seen in the relationship between German Bunds and US 10yr Treasuries. TSYs were already on the rise, relatively, but specific to last night, after being in lock-step with Bunds out of the gate, TSYs stayed higher in yield while Bund yields moderated following weaker-than-expected Eurozone industrial output. Although TSYs held a supportive ceiling heading into domestic hours, they're clearly favoring a defensive stance ahead of today's 10yr auction (an early one at 11:30am) and FOMC Announcement.
10's were several bps higher out of the gate this morning, basically bouncing along their overnight ceiling into US trading hours. Fannie 3.0 MBS opened in line with yesterday's lows but quickly headed back to unchanged levels (realized they weren't Treasuries? Didn't have to freak out as much over today's events?) and are now 3 ticks better at 104-31+. 10's are still slightly higher than yesterday at 1.661, as are S&P futures, up about 5 points from 4pm levels.
Morning data passed mostly without a trace, as expected, but if anything, the significantly lower than expected Import Prices were more supportive than not. 10r Auction at 11:30am and FOMC Announcement at 12:30pm. The default expectation is for $45 bln of Treasury purchases to continue. Anything other than that could have a surprisingly big effect on trading levels (read more...
). The FOMC Member Forecasts are released at 2pm and Bernanke begins his press conference at 2:15pm.
ECON: Import Prices Fall At Fastest Pace In Five Months
- Nov Import Prices -0.9 pct vs -0.5 pct Consensus
- Nov Export Prices -0.7 pct vs 0.0 Consensus
U.S. import prices decreased 0.9 percent in November, the U.S. Bureau of Labor Statistics reported today,
following increases in each of the three previous months. The decline was primarily led by lower fuel prices.
The price index for U.S. exports also fell in November, decreasing 0.7 percent after remaining unchanged in
Live Chat Featured Comments
Matt Hodges : "the masses don't understand twist/QE/Sterilized, etc."
Matt Hodges : "perceived"
Grant R. Menard : "I dont post much, but as this year closes out I just want to say I appreciate everyone that is a part of this site. Great group of people with wonderful insight... (grant puts on his Christopher Cross albulm and sheads a tear). "
Matthew Graham : "are you saying that's how you think it's perceived or that's what it actually suggests?"
Matt Hodges : "printing suggests Washington can not ever pay their bills with their income."
Matthew Graham : "definitely agree. It could just be me, but I get the impression that "printing" carries a negative connotation among the masses. Thoughts?"
Victor Burek : "the masses understand printing money..but dont understand unsterilized"
Brett Boyke : "printing "
Matthew Graham : "does the best job of conveying the concept of "asset purchases that are NOT OFFSET by asset sales for the purposes of keeping the Fed's balance sheet even-keeled" "
Matthew Graham : "I don't know if there is an official term. That's a frontrunner though, if there is one."
Victor Burek : "isnt that the official term?"
Victor Burek : "unsterilized"
Matthew Graham : "No reason not to expect MBS status quo, but Twist expires on 12/28, but the Fed doesn't have enough shorter maturity Treasuries to sell in order to finance longer term buying, so the assumption is "new money creation," aka printing, QE, or whatever you want to call it."
Matthew Graham : "New Treasury purchases."
Andy Pada : "MG, what exactly is QE4? MBS and/or Treasury purchases, twist, if possible?"
MMNJ : "can't you just charge the full fee and then give them a lender credit off of the closing costs?"
Tim Mitchell : "you can reduce the loan amount if you chose by any amount that you want to compensate easily for a portion of the fee"
Clayton Sandy : "I think it's similar to FHA UFMIP. Has to be all or nothing. "
Matt Hodges : "http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_fee.asp?expandable=0&subexpandable=0"
Jason Harris : "You all able to finance a portion of VA Funding fee? Or is it all or nothing? My system does not seem to have a way to finance part of it..."
Matthew Graham : "Same poll shows 31 of 49 expect Fed to adopt numerical thresholds for inflation and employment. "
Matthew Graham : "Reuters Poll has 47 out of 51 economists expecting QE4 today. Consensus for unchanged $45 Bln / Month"
Matthew Graham : "RTRS- U.S. NOV IMPORT, EXPORT PRICES DECLINES LARGEST SINCE JUNE "
Matthew Graham : "RTRS - U.S. NOV EXPORT PRICES -0.7 PCT (CONS. UNCHANGED) VS OCT UNCHANGED (PREV UNCHANGED) "
Matthew Graham : "RTRS - U.S. NOV IMPORT PRICES -0.9 PCT (CONSENSUS -0.5 PCT) VS OCT +0.3 PCT (PREV +0.5 PCT) "
Matthew Graham : "RTRS- TROIKA CONFIRMS GREEK DEBT SUSTAINABILITY - GERMAN FIN MIN LETTER "
Matthew Graham : "RTRS- GERMAN GOV'T FAVOURS PAYING OUT NEXT TRANCHE OF GREEK AID - LETTER FROM GERMAN FINANCE MINISTRY "