Treasuries and MBS rallied ferociously today after elections in Italy turned out (or "are turning out" since they're not done yet) to be very different than market expectations. Long story short, Pier Luigi Bersani was expected to win both upper and lower houses of Italian Parliament, even if only by a small margin. If that happened, it would have been as close to a status quo as possible--one that would have been the best possible outcome for broader EU stability considering the performance of Italian spreads since Berlusconi was ousted in late 2011. Instead, Berlusconi himself looks to have won at least one side of Parliament. Not only is this counter to expectations from yesterday and beyond, but it's also counter to the first polls from as recently as this morning! Bond markets were always likely to rally if Berlusconi won, but the shock and awe added fuel the face-melting fires. MBS had their best day since the QE3 announcement and 10yr Treasuries had their best day since early November, with huge volume to back it up. Now for the caveat: further volatility is possible and markets currently look to be pricing in the fear that Italy won't form a government. If something else proves to be the case by tomorrow morning, we could be bouncing back. It's like a heavy snow the night before a school day and we're the elementary students hoping for a snow-day. We could wake up tomorrow to a winter wonderland or to bone-dry pavement. Admittedly, something in between is the highest probability.
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 4:06 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Treasuries, MBS Break Resistance, Positive Reprices
Italian election eventualities couldn't be much friendlier to US bond markets than they have been, with each updated poll showing more and more uncertainty. Conflict and/or lack of ability to make political progress in Italy (not to mention the possibility of outright panic as seen the last time Berlusconi was in power in late 2011) are positive factors for safe haven debt like German Bunds and US Treasuries.
Bunds get the lion's share of the benefit here, but there's significant spillover into Treasuries. In addition, Treasuries have some catching up to do as Bunds have been handily outperforming since late January (in a 1:1 relationship, US 10's would be closer to the mid 1.8's).
With European bond markets closed, liquidity favors US 10's now as far as hedging against Italian election uncertainty. Euros just broke Friday's lows and are now the lowest since 1/10. 10yr yields have taken out several lines of technical resistance and are currently testing a break below the 1.912 level after earlier wrestling with 1.926.
Just as Bunds and the collective notion of EU risk spill over into positivity for Treasuries, Treasuries spill over into positivity for MBS. The latter isn't getting as much benefit, up only 9 ticks to Treasuries' 15 tick gain, but it still puts Fannie 3.0s at 103-08, back in the mix with late Jan/early Feb levels. We've seen a ton of reprices already and other lenders may just be waiting for prices to level off before dialing in a reprice amount.
Live Chat Featured Comments
Steve Chizmadia : "REPRICE: 3:10 PM - Pinnacle Better"
Clayton Sandy : "REPRICE: 1:58 PM - Provident Funding Better"
Dan Crowley : "REPRICE: 1:58 PM - Platinum Mortgage Better"
Gus Floropoulos : "REPRICE: 1:57 PM - PHH Better"
Matthew Graham : "1.8704-ish"
Clayton Sandy : "MG, resistance after 1.8905...? Seems to be working. "
Clayton Sandy : "REPRICE: 1:28 PM - Chase Better"
Victor Burek : "plaza repriced .30 better"
Michael Tadros : "REPRICE: 1:24 PM - Interbank Better"
Mike Walker : "@B-C Wells mostly .25 better on the reprice"
Matthew Graham : "RTRS- ITALY CENTRE LEFT SEEN LEADING IN LOWER HOUSE ON 29.5 PCT, BERLUSCONI CENTRE RIGHT 28.5, GRILLO 26.4 PCT, MONTI 10.5 - IPR PROJECTIONS FOR MEDIASET TV "
Bill Laffey : "REPRICE: 1:11 PM - Cole Taylor Better"
Matthew Graham : "RTRS- ITALY'S CENTRE-LEFT SEEN AT 29.1 PCT IN CHAMBER, CENTRE-RIGHT AT 28.6 PCT, GRILLO AT 26.3 PCT, MONTI AT 10.8 PCT -RAI PROJECTION"
Matt Hodges : "REPRICE: 1:04 PM - BB&T Better"
B-C : "anyone know if that Wells reprice was .250 better?"
Clayton Sandy : "REPRICE: 12:54 PM - Stearns Lending Better"
Victor Burek : "REPRICE: 12:44 PM - Plaza Better"
Matt Hodges : "REPRICE: 12:44 PM - USBank Better"
Ira Selwin : "Yes"
B-C : "is that Franklin x 2?"
Kent : "REPRICE: 12:00 PM - Franklin American Better"
Rob Clark : "REPRICE: 11:52 AM - Provident Funding Better"
Bryce Schetselaar : "TSY almost at intraday low from 2/1"
Andrew Russell : "so someone recently said we need help from Europe, and here we go..."
Matthew Graham : "they've been mostly joined at the hip JH"
Jason Harris : "Is there any effect on Spain's yields resulting from Italy?"
Rich DeSimone : "Forza Italia !! "
philip mancuso : "btw, here'sa great read on the continued death of the american consumer. http://www.cnbc.com/id/100485313"
Matthew Graham : "Italian 10's up 25 bps since 930am."
Matthew Graham : "1.926 is intraday low from 2/1 (NFP day) on 10's, FYI"
Matthew Graham : "Indeed it is the jackpot. This is about as good as the elections could have gone for US Bond markets."
philip mancuso : "canolis for everyone!!"
Ted Rood : "jackpot!"
Matthew Graham : "RTRS- ITALY CENTRE-LEFT OFFICIAL SAYS ITALY VOTE A HEAVY BLOW AGAINST EUROPE AND EURO, IF PROJECTIONS CONFIRMED "
Steven Stone : "i actually think its because we are still rallying...the desk likes to see things settle out before they decide they are all in"
Steven Stone : "there you go"
Steven Stone : "REPRICE: 11:30 AM - Franklin American Better"
B-C : "shouldnt we be getting numerous reprices being we are 10 tics better than this mornings lows before pricing was released?"
MC : "REPRICE: 11:25 AM - Flagstar Better"
Matthew Graham : "the necessity of another vote is friendly, yeah."
Victor Burek : "another vote should be friendly to us, right?"
Matthew Graham : "RTRS - ITALY CENTRE LEFT OFFICIAL SAYS SCENARIO FROM PROJECTIONS SO FAR SUGGEST WILL NEED TO VOTE AGAIN "