MBS began the day in an unassuming stance. Treasuries had just rallied sharply in the overnight session with 10's moving from 2.67 to under 2.63, mostly during European hours. At least some of that inspiration was due to an unfolding political drama in Italy that threatens to result in a sovereign debt rating downgrade. Political drama-related headlines have theoretically been a benefit as well.
The balance of overnight movement was good enough for bond markets to start their day near the stronger half of yesterday's levels. The "unassuming" part happened from then until 9:55am Consumer Sentiment, which came in at the lowest levels since April. It wasn't much of a miss, but as we've discussed incessantly, the data would need to be getting stronger and beating expectations to have a negative impact. Bond markets were holding out for that eventuality, but got the green light from the weaker result. Safe to proceed.
Trading needs for the month and quarter-end deadline on Monday are adding another layer of support, and we're seeing evidence of some slight correction in the asset allocation trading that had so clearly benefited equities until last week. All told, the rally isn't utterly immense given that 10yr yields are only 3.26bps lower than they were at 5pm yesterday (Fannie 3.5 MBS up 12 ticks), but bond markets would have been well within their right to head the other direction. Thus, it's a pleasant surprise and one that results in the best rate sheets in over 3 months.
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
Bond Markets Rally Modestly on Weak Consumer Sentiment Data
Charts on the MBS Live dashboard convey a seemingly abrupt surge higher after Consumer Sentiment data. While the weaker-than-expected data has had a positive effect for bond markets, that's only a 2/32nds move for Fannie 3.5s. In other words, we're rallying modestly, at the best levels of the day, but not shooting the moon just yet.
Treasuries are similarly at their best levels of the day with 10's down to 2.621. It's worth noting that this is where resistance begins to kick in from a technical standpoint (meaning 2.62-ish has been more likely to result in "bounces" vs "breaks." That doesn't mean it will happen this time--simply that a break would be significant as it would be outside the norm).
ECON: Consumer Sentiment Lowest Since April
The overall Consumer Sentiment Index was revised to a final reading of 77.5 from a preliminary 76.8. Economists surveyed by Reuters had been expecting 78.0.
The internal components of the survey were mixed, with "current conditions" coming in slightly stronger than expected and "expectations" slightly weaker.
Despite the small miss to the downside, the headline is at it's lowest level since April, along with expectations and current conditions. This is providing a boost for bond markets in the immediate wake of the report.
Bond Markets Slightly Stronger Overnight Thanks to an Old Friend
Markets can't help but be painfully aware of the 'government shutdown' debate, and if for no other reason than implications on growth, it's having a moderate positive effect all other things being equal.
Another 'old friend' has reentered the realm of relevance, though we're not sure how long it will be the case. The friend: Italy, or more appropriately, Italian political drama--something that's proven to be a great temporary benefactor of US bond markets. Most recently, ratings downgrade rumors have been swirling and Italian credit spreads gapped out last before and after a rough sovereign debt auction. Treasuries followed that action, albeit indirectly (in that weakening Italian debt caused safe-haven demand for German debt, causing spillover demand for US debt).
Before that, Treasury yields were slightly higher during the Asian hours of the overnight session, but European hours left them in stronger territory heading into 8am. MBS opened a few ticks higher than yesterday as a result.
The morning economic data--Incomes and Outlays--was a non-event, coming in perfectly in line with the forecast. Position-squaring ahead of Monday's 'month-end' session has done more to shape the early price action than anything, though some accounts look to have re-shorted Treasuries this morning after profits were taken at 2.62.
Consumer Sentiment data is next up at 9:55am. Fannie 3.5s are up 3 ticks currently at 101-18 and 10yr yields are down just under a bp at 2.639.
ECON: Consumer Spending and Income Both Exactly as Expected
- Spending +0.3, as expected
- Income +0.4, as expected
- Market Reaction: None. Waiting on Consumer Sentiment at 9:55am.
Personal income increased $57.2 billion, or 0.4 percent, and disposable personal income (DPI)
increased $56.2 billion, or 0.5 percent, in August, according to the Bureau of Economic Analysis.
Personal consumption expenditures (PCE) increased $34.5 billion, or 0.3 percent. In July, personal
income increased $21.2 billion, or 0.2 percent, DPI increased $32.7 billion, or 0.3 percent, and
PCE increased $18.3 billion, or 0.2 percent, based on revised estimates
Personal outlays -- PCE, personal interest payments, and personal current transfer payments -- increased
$38.4 billion in August, compared with an increase of $22.2 billion in July. PCE increased
$34.5 billion, compared with an increase of $18.3 billion.
Live Chat Featured Comments
Gus Floropoulos : "TR is spot on, 2009-2011 FHA was the best option for more than 51% of loans"
Gus Floropoulos : "the govie program was meant for specific use, following the crisis it became the best option due to lower rates, higher DTI's, and at the time the mi was low and temporary"
Tim Y : "they have definitely look like they're pricing themselves out of the market."
Ted Rood : "I've done a couple of the pre 5/2009 streams this year, and 1 purchase, but only because it wasn't USDA eligible."
Ted Rood : "Volume has to have dropped off dramatically with the new MIP rules, plus changing streamline guides and raising MIP going back to 2009. Know my volume was WAY higher in 2009-2010 than in 2012-2013."
Gus Floropoulos : "historically the last few years have set records for fha volume im sure"
Gus Floropoulos : "shocked they r still in the red"
Sung Kim : "seems so 1.7bn seems so miniscule..."
Sung Kim : "clearly FHA needing infusion means nothing"
Scott Valins : "I wonder if stock lever is back in play and we are witnessing a slight reversal of the great rotation"
Ted Rood : "Clearly they included a large number of LO's in the poll who were looking at their August closings."
Matt Hodges : "that should help"
Matthew Graham : "THOMSON REUTERS/U. OF MICH CONSUMER SENTIMENT INDEX, CURRENT CONDITIONS INDEX AND EXPECTATIONS INDEX AT LOWEST SINCE APRIL ON FINAL BASIS "
Matthew Graham : "- THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT INDEX FINAL SEPTEMBER 77.5 (CONSENSUS 78.0) VS PRELIMINARY SEPT 76.8 "
Gus Floropoulos : "Im seeing best spreads since June today"
Andy Pada : "we are losing all our jumbo business to those two right now."
Andy Pada : "fyi: TD Bank retail trying hard to compete with Wells retail on jumbo."
Matthew Graham : "I view it more as a restoration of logic. Since May, there was a sort of inexplicable urgency with respect to the tapering agenda. Many tried to make sense of it, myself included, and there were some clues from the Fed themselves, but by abstaining at the last meeting, we finally see they're not quite as hell-bent as markets figured they were (or even as they portrayed themselves to be, some would argue!). The only remaining conclusion is that data must be improving in order to increase the l"
Andy Pada : "So under Occam's Razor theory, we are removing the penumbral spectre of tapering in assessing data?"
Matthew Graham : "Yeah, check Occam's Razor notion this morning. A month ago, data's most logical implications were trumped by the apparent determination to taper. Now it can mean what it means again. Not sure that makes sense."
Andy Pada : "not that I necessarily agree with the rationale, but I think that meeting economic data forecasts has resulted in a different market reaction from a month or two ago."
Andy Pada : "if the same data points met expectations a month ago, would we be green and elevated? Or would the market consider this as proof of taper to come."
Matt Hodges : "The Day Ahead is a pretty cool read. Kudos, MG"
Andy Pada : "meeting expectations is positive for us now."
Matthew Graham : "RTRS - US AUG PERSONAL INCOME +0.4 PCT (CONS +0.4 PCT), LARGEST INCREASE SINCE FEB, VS JULY +0.2 PCT (PREV +0.1 PCT) "
Matthew Graham : "RTRS - US AUG PERSONAL SPENDING +0.3 PCT (CONSENSUS +0.3 PCT) VS JULY +0.2 PCT (PREV +0.1 PCT) "