For bond markets, it's another day of "positivity, but with a catch." That's been the case with every single drop of positive momentum this week! The foundation for such a seemingly outrageous claim is clear in last Friday's (NFP day) range. In overnight trading, 10's hit multi-year highs just over 3.00% and had fallen to 2.862 within 3 minutes of NFP. Now this week, despite the volatility, trading levels haven't gone over those pre-NFP highs and just yesterday hit their best levels of the week at a surprisingly familiar 2.862.
No manner of positive input has, thus far been able to challenge those stronger levels. This is similarly reflected in MBS with Fannie 4.0s unable to crack above their 102-24 technical ceiling. As far as positive input this morning, we had both Retail Sales and Consumer Sentiment coming in weaker than expected. The Sales data is arguably a wash, with last month's report being revised up by the same amount this month's missed forecast. Consumer Sentiment was less equivocal but prone to choppiness. This is a bigger swing than normal, but the series remains inside it's long term trend. All in all, it's enough for bond markets to be green, but not enough to break into new and exciting territory. This could happen in the traders' sandbox that is the PM hours on Fridays, but it didn't happen when it mattered. Bring on FOMC.
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 11:08 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
ECON: Consumer Sentiment Much Lower Than Expected
- Sentiment 76.8 vs 82.0 forecast
- current conditions 91.8 vs 94.8 forecast
- expectations 67.2 vs 74.0 forecast
- Sentiment lowest since April
- Expectations lowest since January
- Market Reaction: Treasuries and MBS rallying just barely to best levels of the day.
Survey director Richard Curtin attributed the decline to "growing concerns that higher interest rates will diminish the pace of economic growth as well as job gains."
He added that a "cooling housing market has also affected homeowners' sense of personal financial progress."
Consumers were also apprehensive about fiscal policy and another potential battle in Washington over raising the government's legal borrowing limit, the survey showed.
Rates Rallying After Consumer Sentiment
Headline Sentiment 76.8 vs 82.0 forecast--lowest since April
Expectations Lowest Since January
MBS back near highs of the day. More to follow...
Weaker Overnight, Stronger After Data, Hitting Resistance Now
It's been a surprisingly straightforward overnight and early morning session so far despite the volatility. Little was happening during Asian hours until Japan's Nikkei newspaper published a story quoting inside, unnamed sources, saying that Obama would nominate Summers for Fed chief. This wasn't the garden variety op-ed, but a claim of inside info.
Stocks sold-off quickly on that news and bond yields rose (as Summers is generally regarded as less QE friendly than Yellen). Both spent the rest of the evening recovering back toward Thursday's latest levels. As domestic traders were sitting down, another newswire came out from Dow Jones saying Obama hasn't decided yet.
Bond markets rallied back to their best overnight levels on that news, and then rallied some more after a weaker-than-expected Retail Sales number (+.2 vs +.4 forecast). Offsetting the bond bullishness was the face that last month's sales were revised higher by a similar amount today's missed. Essentially, it's just not quite enough "bad news" to clearly suggest the Fed reconsiders whatever tapering timeline they're currently considering.
As such the rally hit the skids before dipping below 2.88 in 10yr yields and before Fannie 4.0 MBS broke above their highs from yesterday. Both are currently near unchanged levels, but Fannie 4.0s are doing slightly better--3 ticks up currently at 102-18. Consumer Sentiment rounds out the day's data at 9:55am.
ECON: Producer-level Inflation Cooler Than Expected
- PPI Unchanged vs +0.1 forecast
- Annual Core PPI +1.1 vs +1.3 forecast
- Labor Dept says 2/3 of rise = energy costs
- Market Reaction: More interested in Retail Sales. This report is not hurting the case for bond markets, but probably not helping much.
The Producer Price Index for finished goods rose 0.3 percent in August, seasonally adjusted, the
U.S. Bureau of Labor Statistics reported today. Prices for finished goods were unchanged in
July and increased 0.8 percent in June. At the earlier stages of processing, prices received by
producers of intermediate goods were unchanged in August, and the crude goods index fell 2.7
percent. On an unadjusted basis, prices for finished goods moved up 1.4 percent for the 12
months ended in August, the smallest advance since a 0.5-percent rise in April 2013.
ECON: Retail Sales Weakness Offset by Strength in Revision
- August Sales +0.2 vs +0.4 Forecast
- July Sales Revised to +0.4 from +0.2 Previously
- Reaction: Moderately weaker report, somewhat mitigated by the positive revision to last month's report. Given that PPI isn't a major market mover, it's the revisions to Retail Sales here that are likely the main hang up in a more concerted rally. Much like the Jobs report on 9/6, this is weaker, but not "weaker enough" to suggest a change in the taper timeline.
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal
variation and holiday and trading-day differences, but not for price changes, were $426.6 billion, an increase of 0.2 percent (±0.5%)* from the
previous month, and 4.7 percent (±0.7%) above August 2012.
Total sales for the June through August 2013 period were up 5.4 percent
(±0.5%) from the same period a year ago. The June to July 2013 percent change was revised from +0.2 percent (±0.5%)* to +0.4 percent
Retail trade sales were up 0.2 percent (±0.5%)* from July 2013 and 4.8 percent (±0.7%) above last year. Auto and other motor vehicle dealers
were up 12.3 percent (±2.1%) from August 2012 and nonstore retailers were up 10.2 percent (±2.1%) from last year.
Live Chat Featured Comments
Matthew Graham : "THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX PRELMINARY SEPT 67.2 (CONSENSUS 74.0) VS FINAL AUG 73.7 "
Matthew Graham : "THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIMINARY SEPT 91.8 (CONSENSUS 94.8) VS FINAL AUG 95.2 "
Matthew Graham : "THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT INDEX PRELIMINARY SEPTEMBER 76.8 (CONSENSUS 82.0) VS FINAL AUGUST 82.1 "
Christopher Stevens : "REPRICE: 9:47 AM - Wells Fargo Better"
Christopher Stevens : "Great point MG"
Matthew Graham : "Just think! If congress didn't hate GSEs so much, there's no question we'd be under 5% (because g-fees wouldn't be quite gravy train they are currently. Good luck getting budgetary cash-flow heading the other direction though.)"
Matt Hodges : "if you haven't read The Day Ahead do so - it will give you good insight "
Matthew Graham : "eh.. not really. We were at 4.875% with 10's at 3%. If for some silly reason the Fed went with an "all Treasury" taper, it's possible to keep 4.875% with 3.10-3.15, but just barely."
Matt Hodges : "it would challenge MG's main mast on the ship theory, which i find interesting and compelling"
Christopher Stevens : "Be interesting to see spread between MBS and treasuries if that were to happen. Can 10yr be north of 3.10-3.15 and 30yr still be sub 5%"
Victor Burek : "I disagree. they have said all along depends on upcoming data"
Erik Grimmer : "They have to taper...to much build up not to now. Fed showed their hand and response would possibly be bad of they didnt"
Victor Burek : "I think taper is built in, its gonna be more about the forward guidance"
Ray Leone : "Who thinks the taper is already built into the market, raise your slide ruler?"
Matthew Graham : "RTRS - U.S. AUG PPI EXFOOD/ENERGY UNCH (CONS +0.1 PCT) VS JULY +0.1 PCT "
Matthew Graham : "RTRS- U.S. AUG PPI +0.3 PCT (CONSENSUS +0.2 PCT), VS JULY +0.0 PCT "
Matthew Graham : "RTRS- US AUG GASOLINE SALES UNCH VS JULY +0.7 PCT "
Matthew Graham : "RTRS - US AUG RETAIL SALES EX-AUTOS/GAS/BUILDING MATERIALS +0.2 PCT (CONS +0.3 PCT) VS JULY +0.5 PCT (PREV +0.5 PCT) "
Matthew Graham : "RTRS - US AUG RETAIL SALES EX-AUTOS +0.1 PCT (CONS +0.3 PCT) VS JULY +0.6 PCT (PREV +0.5 PCT) "
Matthew Graham : "RTRS- US AUG RETAIL SALES +0.2 PCT (CONSENSUS +0.4 PCT) VS JULY +0.4 PCT (PREV +0.2 PCT) "
Matthew Graham : "DJN-DJ WHITE HOUSE IS SAYING REPORTS IN JAPANESE PRESS THAT OBAMA IS SET TO NAME LARRY SUMMERS ARE WRONG"
Matthew Graham : "DJN-DJ WHITE HOUSE: OBAMA HAS NOT MADE DECISION ABOUT FED CHAIRMAN"
Victor Burek : "White House Is Saying Reports In Japanese Press That Obama Is Set To Name Larry Summers Are Wrong - Dow Jones"
Christopher Stevens : "Until Hilsenrath tells me who the next Fed Chairperson is its all just rumor to me (joking). Funny though that the Nikkei would report this rumor before a US paper. "
Christopher Stevens : "http://mobile.reuters.com/article/idUSL3N0H913Z20130913?irpc=932"