Treasuries drifted only moderately weaker as the first December trading kicked off in Asian markets. 10yr yields rose to 2.76 initially, but moved higher more urgently during European hours. Some of the weakness was attributable to stronger manufacturing data in Europe and some to technical boundaries being broken in German Bunds. Underlying all that, we also have to consider that month-end buying needs helped keep rates somewhat contained into the end of November and now we're seeing more of the market's true intention.
Whatever the breakdown of the weakness might be, it was no doubt exacerbated by this morning's stronger-than-expected ISM Manufacturing data. The Purchasing Managers' Index (PMI) came in at 57.3 compared to a forecast of 55.0. It was also higher than the previous reading of 56.4, which also caused bond market weakness when it came out last month. 10yr yields moved over 2.80 following that and Fannie 3.5 MBS are down about half a point. They'd opened up roughly a quarter of a point weaker.
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 11:05 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: ISM Manufacturing Comes in Stronger, MBS Sell Off
- PMI 57.3 vs 55.0 forecast, 56.4 previously
- Employment Index 56.5 vs 53.2 previously
- PMI highest since April 2011
- Makret Reaction: MBS and Treasuries both move to weakest levels of the session, but haven't extended much beyond the previous boundaries yet.
Manufacturing expanded in October as the PMI™ registered 56.4 percent, an increase of 0.2 percentage point when compared to September's reading of 56.2 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the October PMI™ indicates growth for the 53rd consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the fifth consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through October (53.3 percent) corresponds to a 3.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for October (56.4 percent) is annualized, it corresponds to a 4.4 percent increase in real GDP annually."
Bond Markets Weaker After ISM Data
ISM 57.3 vs 55.0 forecast and 56.4 previously. MBS and Treasuries are both weakening. More to follow...
Bond Markets Weaker Overnight; Waiting on ISM Data
The overnight session began with moderate selling in Asia, but Treasury losses were relatively contained until European hours. Stronger-than-expected data in Europe as well as technical selling in German Bunds pushed US Treasury yields higher from 3:30am to 6am. 10yrs crested 2.80 but have eased somewhat into domestic hours--now down to 2.781.
MBS opened almost 3/8ths of a point weaker and Fannie 3.5s are currently down 9 ticks at 100-18 and 4.0s are down 6 ticks at 104-05. At these levels, Fannie 4.0s get a majority of new origination, but 3.5s remain relevant because virtually every rate sheet will have available rates destined for 3.5 coupons.
Today's one and only significant piece of domestic economic data arrives at 10am with the ISM Manufacturing Index--seen coming in at 55.0 vs 56.4 last time.
Live Chat Featured Comments
Scott Garner : "Really unfair for them to be able to change the game on you. Everybody wants a prequal letter these days. Guess this shows what that's worth."
Nate Miller : "changed it back scott, approve/ineligible now with the original info...yep guess I may have to try LP, too bad the pricing changes when we deliver to freddie"
Matt Hodges : "perplexing and I'm not sure what to suggest other than running LP"
john murphy : "have been burned by this several times Nate. I just try tweaking the factors and rerunning, nothing to lose at this point and cant rollback to prior findings. really frustrating to explain on a purchase."
Nate Miller : "nope, no warnings on value, just the excessive DTI at 46.12%"
Scott Garner : "NM, change it back and see what you get. Curious to see if there was a change made in DU or if it's your data."
Matt Hodges : "is there a warning from DU re: value too high?"
Victor Burek : "so the loan became less risky due to higher value, higher income and assets not ineligible"
Nate Miller : "have a 47% dti du approve/eligible, value came in high, income and assets both came in a little better than original submission/approval, now once everything is updated du giving ineligible due to dti. any sugg. to get the a/e back without having to change rate, prog or l/a? rate/term deal. "
Matthew Graham : "RTRS- MARKIT U.S. MANUFACTURING SECTOR PMI HIGHEST SINCE JANUARY "
Matthew Graham : "RTRS- MARKIT U.S. MANUFACTURING SECTOR FINAL PMI FOR NOV AT 54.7 VS FLASH READING 54.3 AND 51.8 IN OCT "
Victor Burek : "I use this site for foreign data, http://www.forexfactory.com/calendar.php?s=3f960393cb7cbc82eb942401f8fc9a9a"
JRS : "What European data? Do you have a link? "
JRS : "Makes sense, but not the way I was hoping to start this month. "
John Tassios : "Europe date came in better, plus bond traders positioning ahead of NFP this week"
JRS : "What happened in the overnight? Anything specific? "