Little has changed for bond markets since the first update of the morning at 9:27am below. Whereas the "risk-off" undertones were broadly positive for MBS and Treasuries yesterday, "risk-on" is simply taking things back in the other direction today. In both cases, equities markets and European markets are in play. Whereas market participants looked to Europe for guidance on yesterday's quiet session and found a way to rekindle EU turmoil, they're doing the same thing today, but are finding the actual data coming out of Europe to be painting a different picture. It's not that yesterday's quick change in the European outlook was "unfounded," just that it was less founded than today's strength. To be clear, there's every possibility that further Eurodrama is in the cards, but at least for today, markets are obviously feeling like they jumped the gun a bit yesterday, and we're merely witnessing the unwinding of that gun-jumping. Treasury yields haven't changed much from their 8am levels, but did hit their highs just under 2.02 at 10am. MBS similarly leaked to lows of 103-04 and have been holding within 2 ticks ever since.
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
ECON: ISM Non-Manufacturing Mixed, Comments Relatively Upbeat
- Headline PMI 55.2 vs 55.2 consensus
- Business Activity 56.4 vs 59.7 consensus
- New Orders 54.4 vs 58.3 previously
- Employment Index 57.5 vs 55.3 in Dec
- New orders lowest since April, but Employment highest since Feb 2006.
- Comments from survey respondents were generally upbeat as well, perhaps tilting the balance in an otherwise mixed report. Bond markets are in line with their weakest levels of the morning, but we haven't seen a decisive/directional move since the data.
The NMI™ registered 55.2 percent in January, 0.5 percentage point lower than the seasonally adjusted 55.7 percent registered in December. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 56.4 percent, which is 4.4 percentage points lower than the seasonally adjusted 60.8 percent reported in December, reflecting growth for the 42nd consecutive month. The New Orders Index decreased by 3.9 percentage points to 54.4 percent, and the Employment Index increased 2.2 percentage points to 57.5 percent, indicating growth in employment for the sixth consecutive month. The Prices Index increased 1.9 percentage points to 58 percent, indicating prices increased at a faster rate in January when compared to December. According to the NMI™, eight non-manufacturing industries reported growth in January. Respondents' comments are mixed about the economy and business conditions; however, the majority of respondents are optimistic about the overall direction.
Bond Markets Weaker As Risk-Off Moves To Risk-On
Bond markets are in weaker territory this morning. The simplest and most accurate way to explain this is to say that yesterday was a "risk-off" movement and today has been "risk-on." This was the theme in The Day Ahead
, although we'd hoped to see more than just one day of the risk off move.
That said, if we resigned ourselves to following the general swings in equities and European markets amid a lack of domestic data and/or bond-market-specific trading concerns, then we were tacitly agreeing to be at the mercy of equities and European risk markets.
In that sense, the overnight session made a nauseating amount of sense. Asian hours were just about as flat as they could be with less than a 2bp range in 10yr yields and a 3 point range in S&P Futures (after all, yesterday's risk-off move was assigned to Europe in the absence of significant domestic data, so Europe gets to keep carrying that torch).
European data--and there was a good amount--erred on the side of strength last night with stronger services PMIs in both Spain and Germany. Italy's PMI was slightly weaker-than-expected, but that didn't change the takeaway. Peripheral debt moved tighter to German Bunds, themselves moving steadily higher in yield, clearly dragging US Treasuries higher in the process.
Domestic accounts took over in the morning with the first pre-market domestic trade making for a decisive pop over 2% in 10's. This corrected somewhat by 8am, but not so much as to change the broader message, which again, is simply a "risk-on" motion in relatively equal proportion to yesterday's "risk-off."
If anything, we'll take some solace in the face that this less-friendly move is somewhat smaller--i.e. we haven't made it back to Friday's weakest levels. The more disconcerting prospect for today is the the 10am Services PMI is more of a market mover than yesterday's Factory Orders report (which wasn't a market mover at all). If the ISM Non-Manufacturing PMI is in line with the stronger European readings overnight, it merely adds to the risk-off move, likely making it look more like a foil of equal measure to yesterday's recovery.
Even before that, there's the opening bell for stocks. Given the stock-lever connectivity, this could cause volatility for bond markets well in advance of the 10am data. Intraday max supportive ceilings in 10's are at 2.0375. Considering our allusions to wax-on/wax-off, testing 2.0375 would sound like cracking glass.
Live Chat Featured Comments
Matthew Graham : "RTRS- OBAMA TO OFFER SHORT-TERM BUDGET PACKAGE TO DELAY AUTOMATIC SPENDING CUTS ON TUESDAY, TO SPEAK AT 1:15 EST - WHITE HOUSE OFFICIAL "
Matthew Graham : "headline as-expected, but business activity/order weaker, BUT employment stronger... Seems like it could be taken either way at first glance. So far so good though."
Matthew Graham : "Lots of "yeah buts..." in that report.."
Matthew Graham : "RTRS- ISM NON-MANUFACTURING EMPLOYMENT INDEX AT HIGHEST SINCE FEB 2006 "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING EMPLOYMENT INDEX 57.5 IN JANUARY VS 55.3 IN DEC "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX AT LOWEST SINCE AUGUST "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING NEW ORDERS INDEX 54.4 IN JANUARY VS 58.3 IN DEC "
Matthew Graham : "RTRS- ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX 56.4 IN JANUARY (CONSENSUS 59.7) VS 60.8 IN DEC "
Matthew Graham : "RTRS- ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 55.2 IN JANUARY (CONSENSUS 55.2) VS 55.7 IN DEC "
Matthew Graham : "could either add some fuel to the fires set overnight or offer a counterpoint to them. "
Matthew Graham : "yes. ISM is a more significant data set than y'day's Factory Orders"
Anthony Hicks : "are these two numbers coming out at 10am market movers? (if they miss?)"
Dan Clifton : "i have 90% to 650k loan amount, but ARMs only"
MMNJ : "most I have seen on Jumbo: 80% to $1 million, typically most want 6 months reserves (some have 12). Rates are a very tough call as I have no idea what your bps spread on your retained product is. Many have min FICO ranges of 700 to as high as 760"
john murphy : "GM All. I'm putting together a 30 yr fixed jumbo program for balance sheet retention. What is everyone seeing for A paper LTV's and rates up to $1MM?"
James Barnes : "Its about time S&P and Moodys got sued for their part of the mortgage mess. Article in news stream"
Anthony Hicks : "first observation is this is as a result of a rather tepid rally in Europe. We may be stuck in this range for a while. "
Jeff Anderson : "Gm, all. The daily swings seem to be getting bigger. Missed you Mr. Volatility."
Brayden Alexander : "Hitting 2 is just a start. We hit 2.05 overnight on Sunday/Monday. "
Oliver S. Orlicki : "tough trend right now"
Oliver S. Orlicki : "There goes yesterdays gains"