This morning's first update on MBS Live noted that despite overnight press crediting China for prompting bond market weakness, it was in fact European markets that dragged Treasuries toward weaker levels.  The primary culprit was an inflation report from the Bank of England (their version of the Fed).  Although inflation was tame, markets responded instead to the fact that the BOE did nothing to address disinflation. 

In other words, some market participants expect central banks to use accommodative monetary policy to aggressively combat deflation.  This is generally in line with rates being or moving lower.  When the BOE didn't give markets the hints of accommodation, rates moved higher--led, of course, by UK rates. 

From there, there's a domino effect with diminishing correlation running all the way to MBS.  German Bunds were affected almost as much, US Treasuries next, and MBS the least.  The following chart should leave no doubt as to the domino effect (note German Bunds pushed the pace later in the morning, but this was due to a technical break.  The most important features of the chart are the instances where the European debt is bouncing at the same time as Treasuries).

Treasuries vs European Sovereign Debt

Beyond Europe, Treasuries must also be somewhat concerned with the upcoming auction as it represents extra supply for bond markets to purchase.  Rates can rise in advance of that supply in order to facilitate a smoother auction process (aka a "concession").  As such, it's possible to see relief after 1pm even if the auction is in line with expectations, though this happens more often when the week's auctions conclude on Thursday afternoon.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
96-07 : -0-10
FNMA 3.5
100-20 : -0-09
FNMA 4.0
104-06 : -0-07
2 YR
0.3430 : +0.0120
10 YR
2.7626 : +0.0456
30 YR
3.7192 : +0.0352
Pricing as of 2/12/14 12:21PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:02AM  :  ALERT ISSUED: Treasuries Pushing Pace of Weakness; MBS Follow; Some Reprice Risk Building
9:34AM  :  Bond Markets Weaker, But Not Because of China

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jeff Anderson  :  "GM, all. Another month of data skewed by the weather. Aprils data should be "clean"."
Roger Moore  :  "the storm in charlotte today should account for about 30k lessj jobs in the next NFP."
Benjamin Biscoe  :  "anyone here ever dealt with a contract for deed? i have a guy who has one thats a couple of years old, i think fannie allows it to be done as a refinance after 12 months but have never done one before. "
dustin mcalister  :  "if he has been on title for at least 12 months"
Benjamin Biscoe  :  "sorry MG2 was on the phone, thanks for the help on the contract for deed. "
Matt Hodges  :  "Lawrence Yun spoke to our local assoc of Realtors"
Matt Hodges  :  "he said renters have about $3000 in wealth"
Matt Hodges  :  "home owners have $175,000"
Matt Hodges  :  "speaking of cashing out...he said refis are dead... except for those who need to cashout to pay for college education. Says to me that they never started 529 plans and earn too much to help kids qualify to get subsidized loans, but can't save money... a generation of consumers"
Andy Pada, Jr.  :  "so if the APR is greater than APOR+MIP+1.15, then loan is rebuttable presumption and therefore needs residual income analysis"
Ira Selwin  :  "Yes, it's an item to consider. Techincally it should be considered on all loans, to protect yourself, but thats another story."
Andy Pada, Jr.  :  "it seems unlikely that if you include the MIP in the HPCT calculation, that your APR will ever exceed. "
Ira Selwin  :  "Correct, I haven't seen many FHA loans failing the safe harbor testing at this time."
Ira Selwin  :  "And as always, each companies compliance officer should have the final word on this stuff anyway"
Christopher Stevens  :  " We are looking at doing residual income worksheet on all clients"
Matt Hodges  :  "i think WF requires it now on correspondent side"
John Tassios  :  "even after 10 yr auction, still have 30 yr tomorrow, so some more concessions may happen"