The overnight and early morning trading hours were similar enough to recent patterns, with Treasuries flat during the Asian session and weaker during the European session. As per usual, the weakness persisted into the beginning of domestic trading. Recently, that's resolved itself favorably from 8am to 10am hours but today has seen the opposite move. Treasuries improved slightly from 630am to 8am, but have since been moving higher in yield. MBS weathered that storm relatively better, which makes some sense considering that 10's may be getting into a defensive stance ahead of this afternoon's auction. Throwing a volatile wrench into the works this morning was the early release of the FOMC Minutes that had been scheduled for 2pm. The implications for bond markets were negative, but 10's leveled off after an initial spike higher.
MBS Pricing Snapshot
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Pricing as of 11:09 AM EST
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Weak Overnight Session Followed By Surprise FOMC Minutes Release
In yet another repeat performance of what's quickly becoming the standard issue overnight sessions, bond markets were flat during Asian hours and immediately moved weaker into European hours. In a general sense, European bond markets have been following an bounce back in the debt rally inspired by recent Bank of Japan stimulus. Japanese debt itself, has strikingly returned to pre-announcement levels.
European markets were not without their own reasons to move. To this end, Italian debt led the way, tightening up vs German Bunds to its best levels since before the failed election in late February (for reference, there's been a 60bp range between the two countries' 10yr yields since then, with widest levels seen just last week).
The European risk-on move got us to the 8am hour at similarly weak levels that have characterized the past few sessions, but similarities ended as the Fed put out an announcement at 8:55am that today's FOMC Minutes--originally scheduled for 2pm--would instead be released at 9am.
While markets seem to have taken this mostly in stride, it has prevented the same old morning bounce into better territory for bond markets. Recent Fed speakers have done a good job of preparing us for the content of the minutes and it's no surprise to see mention of potential QE tapering some time in the next several sessions. but taking a step back and viewing these snippets in the larger context, this really seems like something that bond markets should be having a more negative reaction to.
Bottom line, the Minutes corroborate recent speeches and the general tone coming out of the Fed is that they are close to some sort of shift that negatively impacts their participation of bond markets. There are no specific dates, amounts, or policy tools named--simply a growing shift in tone. This, combined with the need to accommodate for this afternoon's 10yr Auction have Treasuries and MBS on the back foot so far this AM. 10yr yields are currently up about 3.5 bps at 1.784.
Fannie 3.0s are down 7 at 103-18 (NOTE: "down 7/32nds" refers to MAY COUPONS. With the roll last night, the prices on the screen look like they're down closer to 19/32nds, but 11/32nds of that is accounted for by the Roll).
Live Chat Featured Comments
Jason York : "fortunately, the full week rally leading up to it still is,"
Tony Cardinal : "looking at the 3 over the past 3 mo's i am hoping we see a bounce at this level"
Gus Floropoulos : "like fridays nfp never happened"
Jason Anker : "these were from prior to 88k NFP so I'd assume opinion may have changed a little"
Matthew Graham : "RTRS - MANY FOMC PARTICIPANTS FELT CONTINUED SOLID IMPROVEMENT IN LABOR MARKET OUTLOOK COULD LEAD TO SLOWING PURCHASES AT SOME POINT OVER NEXT SEVERAL MEETINGS"
Matthew Graham : "RTRS - SEVERAL PARTICIPANTS NOTED FOMC COULD HOLD MBS TO MATURITY TO MITIGATE FINANCIAL STABILITY RISKS "
Matthew Graham : "RTRS- A FEW FOMC PARTICIPANTS WANT TO BRING QE TO A CLOSE RELATIVELY SOON, A FEW OTHERS FELT PURCHASE PACE WOULD LIKELY NEED TO BE REDUCED BEFORE LONG "
Matthew Graham : "RTRS- MOST FOMC PARTICIPANTS FELT RISKS, COSTS OF MORE ASSET PURCHASES REMAINED MANAGEABLE BUT MERITED CLOSE ATTENTION "
Matthew Graham : "RTRS - FOMC PARTICIPANTS JUDGED THAT BENEFITS OF CURRENT BOND PURCHASE PROGRAM OUTWEIGH LIKELY COSTS, RISKS - MINUTES "
Matthew Graham : "RTRS- FED SAYS RELEASES MARCH FOMC MINUTES EARLY BECAUSE INADVERTENTLY SENT TO SOME PEOPLE WHO NORMALLY RECEIVE THEM AFTER USUAL RELEASE TIME "
Christopher Stevens : "released inadvertantly to 100 congressional staffers and trade lobbyists"
Christopher Stevens : "according to CNBC info was released yesterday at 2pm "
Matthew Graham : "RTRS - FED SPOKESMAN SAYS FED TO RELEASE FOMC MEETING MINUTES AT 9 AM EDT (1300 GMT) INSTEAD OF 2 PM EDT "
Victor Burek : "tons of info under Learn at top of screen"
Tim Mitchell : "Thanks VB, that does help. I had an idea what it meant but that makes it very clear. "
Ira Selwin : "and Tim, doesn't sound stupid. One of the more popular questions asked."
Victor Burek : "read this, should help http://mbslive.mortgagenewsdaily.com/knowledgebase/articles/21629-why-do-mbs-prices-seemingly-drop-on-notification-d"
Tim Mitchell : "hate to sound stupid but hey i'm paying my $40.00 / mo .. although i'm seeing a 16 bps loss from closing last night, nobody's panicked, because of the roll ?? what is that? am I going to see similar pricing today from my lenders .. or did we get hammered over night?"
Brayden Alexander : "You got it MH. Happy birthday all, and good morning to the rest of us. "
Matt Hodges : "10 year holding nicely in well below 1.80...great to see"
Oliver S. Orlicki : "Creeping up in yield this morning."