Bond markets began the day preemptively weakened by headlines out on Monday suggesting the Senate was working on a deal that would fund the government through mid-Jan and extend Treasury's borrowing authority unti mid-Feb. This made for a decently-sized stock rally and bond futures sell-off, ultimately resulting in 10yr yields topping out at 2.74 in the overnight session. Since the 8am open, bond markets have mostly been able to hold their ground, and even gain some traction, but "dueling headlines" have caused volatility. The best levels were seen just before 10am with MBS heading back into weaker territory since then.
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Bond Markets Gaining Traction After Overnight Weakness
To be completely fair to the 'weakness' referenced in the headline, it arrived entirely in the space of an hour during the middle of yesterday's session. As bond markets were closed, it gets the 'overnight' designation despite occurring in the middle of the day.
The news in question was word of a potential Senate deal that would fund the government through February. Treasury futures were the only real indication of a potential bond market reaction. They fell just below the weakest levels from October 10th, when 10yr yields had risen just above 2.72.
It was no surprise then, to see 10yr yields begin the overnight session trading in a range from 2.71-2.74. They held this range in fairly stable fashion right through to the domestic open. MBS began the day roughly a quarter of a point weaker from Friday's latest levels.
The morning's only significant data was mildly positive for bond markets, with the New York Fed's Empire State Manufacturing survey coming in its weakest levels since May.
Before and beyond that, tradeflows themselves have been erring on the side of positivity and resilience since hitting 2.74 overnight. Both stocks and Treasury yields failed to make new highs at 5:30am, and the sense is building that we're simply in the midst of a technically motivated bounce back from weaker levels.
In other words, with or without this morning's data, the weaker levels seen overnight are potentially being seized as a near term buying opportunity for bond markets. It remains to be seen how well they would be defended if a debt deal becomes more of a reality early this week.
For now, 10yr yields are back down to 2.698 and Fannie 3.5s are only 2 ticks lower on the day at 101-02--well off the morning's lows at 100-28.
ECON: Empire State Manufacturing Weaker Than Expected
- Empire State Index 1.52 vs 7.0 forecast, 6.29 previously
- Employment Index 3.61 vs 7.53 previously
- New Orders 7.75 vs 2.35 previously
- Headline index lowest since May
- Market Reaction: small positive reaction, but tough to separate from Monday morning ramping-up of activity.
The October 2013 Empire State Manufacturing Survey indicates that business conditions held steady for New York manufacturers. The general business conditions index fell 5 points to 1.5. The new orders index rose five points to 7.8 and the shipments index fell three points to 13.1, suggesting that both orders and shipments increased modestly over the month. The prices paid index was unchanged at 21.7 and the prices received index fell six points to 2.4. Labor market conditions were also steady, with the index for number of employees falling four points to 3.6 and the average workweek index inching up to 3.6. Indexes for the six-month outlook continued to convey a strong degree of optimism about future business conditions.
Live Chat Featured Comments
Jason Harris : "Yes....only data can help in my view....need to get this over with"
Bryce Schetselaar : "when do you think bonds find relief? A deal sends them lower. Would have to be NFP?"
Matthew Graham : "RTRS- HOUSE BILL WOULD EXTEND DEBT LIMIT UNTIL FEB. 7, GOVERNMENT FUNDING UNTIL JAN 15 AT CURRENT LEVELS-AIDE "
Victor Burek : "jan or feb"
Jason Harris : "Any insight about how far this will get kicked? (Debt cieling?)"
Matthew Graham : "RTRS- ISSA SAYS REPUBLICAN BILL WILL INCLUDE TWO-YEAR DELAY OF MEDICAL DEVICE TAX "
Matthew Graham : "RTRS - ISSA SAYS HOUSE DEBT LIMIT/FUNDING BILL WOULD PREVENT TREASURY FROM RENEWING ITS EXTRAORDINARY MEASURES TO EXTEND BORROWING AUTHORITY PAST MID-FEBRUARY "
Matthew Graham : "RTRS- U.S. HOUSE REPUBLICAN PLAN TO SEEK DELAY IN OBAMACARE MEDICAL DEVICE TAX-REP. DARRELL ISSA "
Matthew Graham : "RTRS- U.S. HOUSE REPUBLICANS TO OFFER DEBT LIMIT, FUNDING LEGISLATION DIFFERENT FROM EMERGING SENATE PLAN-REPUBLICAN LAWMAKERS "
Victor Burek : "once govt open, and data released, mbs will react to that data"
Victor Burek : "a deal might be bad temporarily as money flows into stocks"
Justin Harward : "Riddle me this though. A deal is bad for mbs but no deal is also bad for mbs?"
Victor Burek : "I think they do more damage when govt is open"
Oliver Orlicki : "ready for this government shutdown to end already"