Bond markets rallied hard overnight on news that EU creditors seek to impose a levy on regular old private-sector bank deposits in Cyprus. 10's made it as low as 1.89 at first, but soon snapped back into the European hours. 10yr yields look to have met technical resistance around 1.95. Back on March 6th, before the ECB/NFP sell-off week that ultimately took 10's as high as 2.08, we characterized 1.95 as a sort of dividing line between European panic and the absence thereof (here's that post and that chart
). Now with more Eurodrama on the table, it looks like the same technical inflection points are being considered. It's too early in the process to know which way things will go, but even at 1.95, it's another step in the right direction for domestic bond markets that rallied almost every day last week. MBS are in between an eighth and a quarter of a point better. As we somewhat frequently like to say, it's "better" for MBS if bond market rallies are slow and steady. MBS can perform more evenly with Treasuries in such cases and hedging costs will be relatively more controlled for lenders (helping to keep rate sheets more reflective of market gains).
MBS Pricing Snapshot
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Pricing as of 11:04 AM EST
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ECON: NAHB Housing Market Index Lower Than Expected
- Index stands at 44 vs 47 consensus, lowest since Oct
- Singe-fam sales index falls to 47 from 51
- Prospective buyers index rises to 35 from 32
- 6 month outlook rises to 51 from 50
Builder confidence in the market for newly built, single-family homes paused for a third consecutive month in March, with a two-point reduction to 44 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
“Following eight consecutive months of improvement, builder confidence leveled off in January and has since edged down several points,” noted NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. “Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals.”
Vying for Technical Victory After Wild Overnight Trading
There are a lot of Cyprus headlines out there yesterday and today. Here's the gist: the EU said Cyprus can have the bailout they need if their banks cough up 7-10% of private deposits (yes, like a good old fashioned bank levy). That would be like the US saying that we would prevent the fiscal cliff by taking cash out of everyone's bank accounts, announce it on a weekend, and freeze access to large withdrawals to prevent runs on ATM machines (there were still runs on ATM machines in Cyprus).
As you can imagine, this isn't a popular idea, and it's a questionable decision on the part of the EU as it creates what could turn out to be a no-win situation where failure to execute (Cyprus gets to vote on whether or not they agree to this wonky condition) creates the probability of default and success could actually be worse (in that it sets a precedent for other at-risk countries to fear for the certainty of private citizens' bank deposits).
Asian markets took the headlines and ran with them--full tilt--driving 10yr yields down to 1.89+ in defensive preparation for the European open. Initial trading in Europe took things back in the other direction, but only so far. 10yr yields were able to hold on to their 1.95 technical pivot both at 5am and now again at 9am. 10's are currently 4.9bps better than Friday afternoon at 1.9425. Fannie 3.0s opened at 102-31+ and are back at those levels after moving a few ticks lower.
There's no meaningful economic data on tap today, so the focus is very much on European markets and their ongoing reaction to all the drama. The US equities open is another potential source of guidance coming up in just a few minutes. Whatever the case, so far so good for domestic bond prices, though at the expense of global economic stability. From a technical standpoint, holding under 1.95 would be a strong showing from Treasuries to start the week.
Live Chat Featured Comments
Matthew Graham : "RTRS- NAHB MARCH INDEX OF HOME SALES OVER NEXT SIX MONTHS 51 VERSUS 50 IN FEB "
Matthew Graham : "RTRS- NAHB MARCH INDEX OF PROSPECTIVE BUYERS 35 VERSUS 32 IN FEB "
Matthew Graham : "RTRS- NAHB MARCH INDEX OF CURRENT SINGLE-FAMILY HOME SALES 47 VERSUS 51 IN FEB "
Matthew Graham : "RTRS- U.S. MARCH NAHB HOUSING MARKET INDEX 44 (CONSENSUS 47), LOWEST SINCE OCTOBER, VERSUS 46 IN FEBRUARY "
Matthew Graham : "http://tinyurl.com/cb9p8kz"
David Gaffin : "Thanks MG, was wondering in the past month or so. Do you have a chart for that?"
Matthew Graham : "Just depends on which "past" you want to compare to DG. Pretty much wider all year"
David Gaffin : "GM everyone. Does anyone know where spreads are with MBS v. 10 YR Treasuries at this level? I am probably off base, but seem wider than in the past."
Jeff Anderson : "They also said they're considering keeping Cypress banks closed tomorrow to prevent a bank run. That's one way to prevent it."
Victor Burek : "thats why such an uproar on taxing 100,000 and less"
Victor Burek : "pretty sure i read they do have a version of FDIC that insures up to 100,000 euros"
John Tassios : "Keep in mind, in those countries, there is NO FDIC, to protect deposits / so if banks fail, customers lose all their money / The Euro Central bank ( Draghi ) has pledged to cover deposits in the past, but there is no formal agreements on paper with all of these countries in case this happens / you hav -0- proctection on your depsits over there"
philip mancuso : "A little disappointed at these levels. 10 year 10 or so ticks off highs. Though mbs might be looking at 103 10. Maybe at open."
Jeff Anderson : "Gm, all. Was thinking the same thing. Any word on if there's been any sort if run on Cypress or other EU banks today? This European a US pre-market reaction feels pretty tepid to me. Thought this would get people even more defensive."
John Tassios : "Should be over 103 in 3.0 MBS bond / they key will be if we can close over that level today"