Overnight trading deposited bond markets in just slightly better territory to start the domestic session. Right off the bat, the ADP employment numbers had a positive effect on prices, but there was a strong push back from 8:30am to 9:00am for no overt reason. Covert reasons abound, however, as traders increasingly show their hands regarding resistance around 2.47-2.48% in 10yr yields.
In other words, 10yr yields have continually shied away from breaking any lower than that, though MBS have increasingly outpeformed in the meantime. Whereas 10's are no lower than overnight lows, MBS are at their best levels since June. The afternoon events could draw out some more conviction in Treasuries (meaning either a firmer bounce against recent yield floors or finally breaking them).
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Bond Markets Reluctantly Stronger After ADP Data
Treasuries were flat at the start of the overnight session, but soon rallied to their best levels in what would best be classified as "mini-snowball" buying. Volume wasn't impressive, but it did pick during the brief surge as technical "stops" were triggered forcing in more buyers (traders' preset lines in the sand that, if hit, prompt automatic buying or selling--in this case, buying).
After dipping below 2.48 just after 2am, and bouncing quickly back to 2.49, 10yr yields crept sideways and slightly higher into the domestic session--coming in the door about a bp lower than yesterday. MBS opened several ticks higher.
From there, the ADP numbers brought an expected surge in volume, and made a brief head-fake toward stronger territory. We soon saw how much hesitation we're dealing with today as both Treasuries and MBS bounced firmly before breaking last week's best levels. If it's any consolation, MBS were much closer than Treasuries. CPI data fell on deaf ears--no surprise there.
The best bet at the moment is that the combination of the week's last Treasury auction and the FOMC Announcement is serving to keep domestic bond markets much more hesitant than they otherwise might be. In fact, that's much more than just a "one day" thing, and it's no guarantee that this afternoon's events are what we're waiting for to change it.
Between now and then, we're in pretty good shape so far, just not rallying as much as we might expect given the weak ADP numbers. Fannie 3.5s are currently up 5 ticks at 102-28 and 10's are down 1.5bps at 2.49. We'll reserve judgment on the day's overall strength (or lack thereof?) until after FOMC at 2pm.
ECON: Core Inflation Remains off Radar at Consumer Level
- CPI +0.2 vs +0.2 forecast
- Core CPI +0.1 vs +0.2 forecast
- Year over year CPI +1.2, as expected, Core +1.7 vs +1.8 Forecast
- Market Reaction: None. Inflation is in "not a threat" mode until proven otherwise via months of consistently troubling data across multiple reports. Until then, it's a waste of space that we're forced to cover.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2
percent in September on a seasonally adjusted basis, the U.S. Bureau
of Labor Statistics reported today. Over the last 12 months, the all
items index increased 1.2 percent before seasonal adjustment.
The energy index rose 0.8 percent in September and accounted for about
half of the seasonally adjusted all items increase. All the major
energy component indexes rose in September. The food index was
unchanged, with declines in the indexes for fruits and vegetables and
for nonalcoholic beverages offsetting increases in other indexes.
The index for all items less food and energy rose 0.1 percent in
September, the same increase as in August. The shelter and medical
care indexes also advanced and accounted for most of this increase.
The indexes for new vehicles and for airline fares rose as well, while
the apparel and recreation indexes declined.
ECON: ADP Employment Weaker Than Expected, Sept Revised Lower
- Private payrolls 130k vs 150k forecast
- Previous reports revised down to 145k from 166k
- Smallest increase since April
- Market Reaction: Bond markets add to gains but hit resistance
Private sector employment increased by 130,000 jobs from September to October, according to the October ADP National Employment Report®. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by ADP®, a leading global provider of Human Capital Management (HCM) solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. September’s job gain was revised down from 166,000 to 145,000.
Live Chat Featured Comments
Bob Bowman : "Alex, answer is No. The Illinois Anti Predatorey Lending Database will only require counseling in certain circumstances like IO refinances, Arms < 3YRS, PrePay etc "
Rob Migasi : "Counseling is not required for first timers in Cook County"
Alex Kulka : "Anyone know if counseling is needed for first time home buyers in Illinois? Specifically Cook County"
Matthew Graham : "Also a ton of technical resistance in general. I think expectations are frontrunning the data and we "need more confirmation" before doing any more than we already have to reverse the 2013 sell-off. I think the consensus is that we get that confirmation, but agree it's hard to know exactly what to do with it because of the shutdown and the lingering debt deadline in March. Some of the frustration was preemptively expressed here: http://www.mortgagenewsdaily.com/mortgage_rates/blog/329751.aspx"
Matthew Carver : "prob, cause they know the data will be negative and they want to dilute the reaction."
Jeff Anderson : "Are traders saying that the shutdown affected the ADP numbers and will be taking most data for the next few months with a grain of salt?"
Victor Burek : "we also have final auction today"
Gus Floropoulos : "I would've expected a much bigger reaction to the adp # this moprning, perhaps the traders are waiting for FOMC?"
Gus Floropoulos : "in essence the taper announcement in May has slowed down the jump in RE value.....possibly averting the bubble from forming to soon. If thatwas the goal, then I think the FED did well"
Matthew Graham : "RTRS- MOODY'S ANALYTICS' ZANDI - OCTOBER UNEMPLOYMENT RATE COULD LIKELY RISE "
Matthew Graham : "RTRS- U.S. OCT NON-FARM PAYROLLS NUMBER COULD COME IN CLOSE TO 100,000 -MOODY'S ANALYTICS' ZANDI "
Matthew Graham : "Let's hope so. It's a bit troubling otherwise, right? There's the auction as well, which could be adding some incremental pressure. Either way, we have to reserve judgment until this afternoon. If you'd given me the ADP results yesterday, I would have expected a stronger move this morning. Guessing you're feeling the same way."
Matthew Carver : "MG - can you elaborate on the "resistance" we are seeing. just pre - FOMC jitters?"
Brent Borcherding : "I thought the article's wording was interesting. Don't know the context of the FOMC meeting you reference, but at 15-20% of GDP, if not a 600 lb gorilla, housing is always a big beast."
Matthew Graham : "That article is pretty funny in how it's worded, but she really was one of the frontrunners on the Fed board with respect to recognizing the seriousness of the housing situation. One of the most cited examples of this was her reference to housing as the 600-lb gorilla in the room at the June 2007 FOMC meeting."
Brent Borcherding : "LOL at the news stream. 6 years later Yellen is contending she was quietly and behind the scenes alerting EVERYONE to an impending housing bust. BTW, I was too."
Matthew Graham : "RTRS- U.S. SEPT CPI YEAR-OVER-YEAR +1.2 PCT, SMALLEST INCREASE SINCE APRIL (CONS +1.2 PCT), EXFOOD/ENERGY +1.7 PCT (CONS +1.8 PCT) "
Matthew Graham : "RTRS- U.S. SEPT CPI +0.2 PCT (+0.1803; CONSENSUS +0.2 PCT), EXFOOD/ENERGY +0.1 PCT (+0.1225; CONS +0.2 PCT) "
Thomas Quann : "Tony....they Changed eligibility from having to be delivered to Fanne/Freddie by May 31, 2009 to it qualifying by the note date by May 31, 2009. Freddie is all set now, Fannie goes Nov 16th"
Matthew Graham : "RTRS- US ADP SEPTEMBER PAYROLL CHANGE REVISED TO +145,000 FROM +166,000 "
Matthew Graham : "RTRS - REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR OCT WAS FOR INCREASE OF 150,000 JOBS "
Matthew Graham : "RTRS- ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 130,000 PRIVATE SECTOR JOBS IN OCTOBER "
Tony Cardinal : "can anybody provide insight to the changes to HARP that are coming up? "