Even seasoned market-watchers might be thrown for a bit of a loop by today's surprisingly strong bond market rally.  After all, we just had a surprisingly strong bond market rally yesterday, taking 10yr yields below 2.57 for the first time this year, and now this morning, they made it all the way down to 2.473, matching the lowest level since last July.

It might not be too much of a puzzler had the 8:30am economic data been extremely poor, but it was quite the opposite.  The data unequivocally pointed to weakness for bond markets.  In fact, that's precisely what we had, but only for the first few minutes. What's up with that?!  Why did it turn around? 

Here's a simple breakdown:

  1. Today provided an opportunity to assess whether bond markets are more interested in economic data or other considerations such as European Central Bank (ECB) Policy.
    1. Recent bond market movement gives us reason to believe that ECB policy is one of the driving forces.
    2. The gist of that news is that the ECB essentially promised 'action' 1 week ago.  EU bond markets have been outperforming ever since, meaning their yields have been falling compared to US Treasury yields.
    3. We've also had days where movement in bond markets worldwide is clearly connected to news concerning this probable policy shift, especially yesterday and the day before
    4. In addition to monetary policy, geopolitical risk is also having some positive effect on European bond markets.
  2. US Treasuries and EU bond markets don't go much farther apart than they were yesterday and the day before.  Because of this, we said that any further drop in EU yields would likely pull US yields lower, and that's exactly what happened this morning.

Conclusion: the assessment was made.  Bond markets were faced with ample positive economic data, yet were forced to follow European bond markets in a counterintuitive direction.  To perfectly illustrate this phenomenon, right after EU bond markets closed for the day, Treasury yields began to rise and MBS began to fall. 

In other words, prices were propped up by the EU session and are releasing some pressure now.  It remains to be seen how far things will go in the other direction, but it's already made for a negative reprice risk situation for Mortgage Rates.

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
98-20 : +0-10
FNMA 3.5
102-21 : +0-08
FNMA 4.0
105-18 : +0-05
2 YR
0.3589 : -0.0081
10 YR
2.5000 : -0.0440
30 YR
3.3385 : -0.0365
Pricing as of 5/15/14 12:37PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:10PM  :  ALERT ISSUED: Negative Reprice Risk Can't be Ruled Out in Some Cases
9:59AM  :  Back to New Highs; Positive Reprice Potential for Early Lenders
9:04AM  :  Bond Markets Bounce Back After Losing Ground on 830am Data Glut

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Oliver Orlicki  :  "Do we break below 2.52 today??"
John Tassios  :  "Bond market on a roll, it will be green again by end of the day"
Jeff Anderson  :  "Very tame response to mostly all non-bond friendly data this AM. I think that's saying something."
Matthew Graham  :  " (Reuters) - Russian President Vladimir Putin has informed multiple European states that Moscow will not supply gas to Europe as of June 1 if Ukraine does not pay its bills, Slovak Prime Minister Robert Fico said on Thursday."
Victor Burek  :  "and Ukraine says they wont pay the bill unless Russia lowers price"
Eric Schuchaskie  :  "I need a gump version for my clients on why rates are going down - can anyone assist? "
Victor Burek  :  "Eric, read mgs day ahead..thats all you need"
Matthew Graham  :  "there's also yesterday's rate coverage Eric: http://mndne.ws/T3CnHX"
Oliver Orlicki  :  "3.875 at freedom is paying .623 on a 30 day"
Scott Valins  :  "with the 3.5 at 103 I feel like 3.875 should be paying more"
Bryce Schetselaar  :  "Its all the G Fees, SV"