Bond markets began the day in weaker territory with a number of factors eligible for blame. Overnight data was stronger in China and Europe.n Tensions eased over Syria after news came out that Syria would agree to turn over chemical weapons to the UN, and Treasuries remained pressured by rate-lock selling for the massive Verizon bond offering set to be priced later today.
As we've previously discussed, when a firm is issuing a corporate bond (taking in
investment that they'll then make payments on at a rate that usually
involves a benchmark like 10yr Treasuries + a margin), they may "lock in" its cost of funding by selling
Treasuries. This means they've given up the right to earn
today's interest rates in exchange for cash. If prices fall and rates
move higher between the time their bond offering is priced and the time
it's fully subscribed , they'll have already sold at the price highs,
offsetting any fall in prices and effectively "locking in" the rate at
which they'll be repaying the investors in their newly issued offering.
10yr Treasuries bounced along their high yields until doing so for the last time at 11am. A break of the low yields forced those betting on higher yields to cover those bets by buying (aka "short covering"). This has mostly run it's course ahead of the 3yr Auction at 1pm, but the net effect has been a return to the highs of the day for MBS after being at their weakest levels at 11am with Treasuries.
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
Bond Markets Weaker Overnight and Still Under Pressure
(Note: this "morning update" is being classified as an alert because the price movement in relation to the time of day makes for a small chance of negative reprices from the earliest-pricing lenders).
Treasuries began the overnight session heading higher in yield after stronger than expected economic data in Asia. The next leg up for yields came at the transition into European hours. Core European debt moved into similarly weaker territory as stock prices rose.
Some of the weakness can be attributed to strong data, while we'd also assume some auction preparation at home (yields building in a concession for the auction cycle that begins today). Corporate issuance (large companies issuing bonds usually sell US Treasuries to effectively lock in their rate of return when the bond is priced as a Treasury yield + a margin) is also a factor, but there's a pervasive increased appetite for risk underlying it all.
And underlying that increased risk appetite is Syria headlines. The biggest news came earlier this morning when Interfax news agency reported Syria accepted a Russian proposal to put chemical weapons under international control. While this doesn't necessarily "solve" the Syria problem, it's cold water for the geopolitical risk trade that had kinda, maybe, sorta been a net benefit for Treasuries.
For all the ostensible damage, trading levels are hanging in there for now--holding above the opening lows. Fannie 4.0s are down 7 on the day at 102-18 (3 ticks off lows). 10yr yields are 4bps higher from yesterday at 2.955. If 10's break overnight highs at 2.964, it would likely put more pressure on MBS.
Live Chat Featured Comments
Matthew Graham : "it's just another yield that we might or might not hit in the next few hours/days, but almost certainly will trade above in the next few weeks/months"
Matthew Graham : "Hard to rule anything out when we're only 4bps away. There are several candidates that could bring about such a move. But just like I didn't much care when certain talking heads said "2.90 is critical you guys!!!" and subsequently said "I really think 2.92 is critical, I'm super serious this time!" Neither do I really care about visiting 3.0 or above. "
Tim Y : "it is coming!"
Amitab Mukerjee : "MG: when do you think the legendary 3 will be hit? I know it fluttered around that crazy day a couple days ago, but will we see 3 before FOMC?"
Matthew Graham : "full article from Reuters coming on that one. Interesting stuff and a feather in the cap for the notion that the fallout from rising rates will ultimately help rates moderate. "
Matthew Graham : "RTRS-ECB'S ASMUSSEN - CAN EXPECT LARGER GLOBAL SPILLOVERS FROM FED TIGHTENING NOW THAN IN 1994"
Ira Selwin : "MH - 5+ units don't count"
Matthew Carver : "not if it's a single folio and building"
Matt Hodges : "when calculating # of properties financed on REO, does a 3 unit "count" differently than a 1 unit?"
John Rodgers : "Job cut and consolidate "
Jeff Anderson : "GM, all. So JP Morgan and Wells say their mtg business is hurting. Do they get aggressive with rtes for more business or bump up rates/pricing for better margins?"
Scott Valins : "Syria attack less likely"
Dan Clifton : "john I would thuink that you take the current yield and subtract the number in red to the right of it gives you 2.914 for yesterdays close"
John McClellan : "what did the 10 year close at yesterday"