Even before this morning's economic data, bond markets were in weaker territory as the US played catch up to the rest of the world's Monday trading. There are several blame-worthy culprits including stronger European economic data, an absence of major military action in Syria and the general return of fuller participation to financial markets after the last week of summer.
Stronger-than-expected ISM Manufacturing data added to the weakness this morning, taking Treasuries and MBS quickly back to their weakest levels of 2013 (or close to them, depending on the security). Recent headlines regarding Speaker Boehner's support for military action in Syria has helped stop the trend toward weaker levels in bond markets and sparked rapid stock selling.
Through it all, MBS have outperformed Treasuries with 10yr's down closer to a full point vs Fannie 4.0s losses of just less than half a point. Despite the outperformance, the 10am release time for ISM data meant that some lenders were already out with rates by the time prices deteriorated. Several negative reprices have already been reported.
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 11:07 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
Selling Continues; Additional Reprice Risk
Negative reprice risk is incrementally higher than the post-ISM sell-off alert. 10yr yields are several bps higher now, cresting 2.910 and Fannie 4.0s are down 17 ticks at 102-14. All lenders are at some risk of negative reprices now, provided they were out with rates around or before 10:30am.
ECON: Construction Spending Higher Than Forecast, Led by Private Sector
- Construction Spending +0.6 vs +0.3 forecast
- Private spending +0.9, Public -0.3
- Total Construction Spending Highest Since June 2009
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2013 was estimated at a seasonally adjusted annual rate of $900.8 billion, 0.6 percent (±2.0%)* above the revised June estimate of $895.7 billion. The July figure is 5.2 percent (±2.1%) above the July 2012 estimate of $856.3 billion.
During the first 7 months of this year, construction spending amounted to $493.9 billion, 5.6 percent (±1.5%) above the $467.7 billion for the same period in 2012.
Spending on private construction was at a seasonally adjusted annual rate of $631.4 billion, 0.9 percent (±1.3%)* above the revised June estimate of $625.6 billion. Residential construction was at a seasonally adjusted annual rate of $334.6 billion in July, 0.6 percent (±1.3%)* above the revised June estimate of $332.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $296.8 billion in July, 1.3 percent (±1.3%)* above the revised June estimate of $293.0 billion.
In July, the estimated seasonally adjusted annual rate of public construction spending was $269.4 billion, 0.3 percent (±3.1%)* below the revised June estimate of $270.1 billion. Educational construction was at a seasonally adjusted annual rate of $62.9 billion, 1.5 percent (±6.9%)* below the revised June estimate of $63.8 billion. Highway construction was at a seasonally adjusted annual rate of $78.0 billion, 1.1 percent (±7.2%)* below the revised June estimate of $78.8 billion.
ECON: ISM Manufacturing Much Stronger Than Expected
- PMI 55.7 vs 54.0 Forecast, 55.4 previously
- New Orders 63.2 vs 58.3 previously
- Prices Paid 54.0 vs 52.0 Forecast, 49.0 previous
- Employment 53.3 vs 54.4 previously
Market Reaction: Immediate move to the weak side for MBS and Treasuries.
Manufacturing expanded in August as the PMI™ registered 55.7 percent, an increase of 0.3 percentage point when compared to July's reading of 55.4 percent. August's reading reflects the highest overall PMI™ reading in 2013. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August PMI™ indicates growth for the 51st consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the third consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through August (52.5 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for August (55.7 percent) is annualized, it corresponds to a 4.2 percent increase in real GDP annually."
Bond Markets Weaker Following 10am Data
After stronger-than-expected ISM Manufacturing and Construction Spending numbers, the first move is DOWN for MBS and up for Treasury yields. 10's shot up to 2.885 from under 2.84 before the data and Fannie 4.0s are following the move weaker. Lenders that were already out with rate sheets are already facing some negative reprice risk.
Bond Markets Looking for Support After Overnight Selling
Simply making it through the weekend without any overt military action in Syria was enough for equities futures to bounce higher and Treasury futures to bounce lower at the start of yesterday's overnight session. Strong European economic data yesterday added to the bond market weakness early yesterday morning with the worst levels coming in just after 4:30am.
Treasuries have bounced around in a fairly choppy, sideways range since then, pushing on an implied ceiling around 2.85, currently at 2.84. This is in the upper-middle zone of the range-trade that's characterized the 2nd half of August (from 2.71 to 2.93).
MBS opened several ticks weaker than Friday's latest levels and have quickly gotten caught up with most of the weakness in Treasuries. Fannie 4.0s are down 8 ticks so far at 102-23.
The first significant data arrives at 10am this morning with ISM Manufacturing, expected to ease to 54.0 from 55.4 previously.
Live Chat Featured Comments
Christopher Stevens : "that is correct Gus. Not sure a reprice will be seen for those that priced with 10YR at 2.85 though"
Christopher Stevens : "looks like pricing is off 40-60 bps from Friday morning"
Matthew Graham : "RTRS- ISM U.S. MANUFACTURING NEW ORDERS INDEX 63.2 IN AUGUST VS 58.3 IN JULY "
Matthew Graham : "RTRS- ISM REPORT ON U.S. MANUFACTURING SHOWS PMI AT 55.7 IN AUGUST (CONSENSUS 54.0) VS 55.4 IN JULY "
Christopher Stevens : "article on front page of Money & Investing section in today's WSJ today on 10YR "Many investors expect bond market pain but not as severe as spring's swoon". Many looking for 3-3.15% by end of year."
Gus Floropoulos : "looks like every1's prepping for bad news for bonds"
Christopher Stevens : "volatility and it seems the market will be siding with the higher end of the range for now"
Matthew Graham : "Same sort of range trade that's been in force since 8/23, but with the potential to start "taking sides" the closer we get to NFP--especially on Thursday."
Matt Hodges : "Erik - i expect volatility. NFP will go a long way to firmer up taper in Sept or not"
Erik Grimmer : "Mg......what do you see happening this week ahead of Friday?"
Matthew Graham : "RTRS- MARKIT U.S. MANUFACTURING SECTOR FINAL PMI FOR AUGUST AT 53.1 VS FLASH READING 53.9 AND JULY FINAL 53.7 "
John Tassios : "There was a correlation, futures were way down early and the market was down all day, before a bit of a late day comeback. It was next day after Kerry's first speech to denounce Syria actions."
Matthew Graham : "I'd have to go back and find the chart and post, but I think there was definitely a correlation (the biggest one last week) between Syria and falling futures--especially on the afternoon's of the 26th and all day on 27th."
Erik Grimmer : "I find it interesting that futures are surging due to military action being delayed. Stocks didn't sell off much on there being military action. Thought most of the sell off was due to poor economic data"
Andrew Russell : "The green mile towards Fridays NFP starts now"
Jeff Anderson : "GM, all. Europe is fixed. Hello 7% rates. Hmmm, jury's still out, IMO."