Bond markets were weaker today.  The story of that weakness really begins in the middle of last week when Wednesday and Thursday saw successive moves to unexpectedly low levels.

Before that, 2.47 was a lower bound in terms of 10yr yields.  All things being equal, it was a good candidate to bookend a trading range heading into this week's important events, but it was convincingly broken, giving way to lows just over 2.40 on Thursday. 

Last week, we spent a good amount of time discussing two of the important market movers behind the unexpected strength: month-end buying and the generally pervasive "short-covering" that's added fuel to more than a few recent moves lower in rate.  Both of these things are finite considerations.  One of them adheres to a schedule and the other one is more enigmatic. 

While we still can't know exactly how many traders who'd been betting on higher rates were forced to cover those bets (by buying bonds) last week, we can see that there's not currently a short-covering boost this week.  Combine that with the absence of of month-end support (because it's June now) and bond markets faced an uphill battle regardless of data.

Then when we throw data into the mix, things just get worse.  Bonds might have managed a relatively flat day at weaker levels today had this morning's ISM data not been re-reported at stronger levels after a data error affected the initial release.  In a nutshell, the initial read on ISM was our only friend today, and the recall/revision turned that friend against us. 

The result was a moderately brisk bout of selling.  Interestingly enough--with respect to the notion of 'undoing' some of last week's temporary factors--we're right back at the levels seen before those temporary factors are thought to have kicked into high gear.  Hopefully that means we have a better shot of holding sideways here. 

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
98-13 : -0-15
FNMA 3.5
102-19 : -0-11
FNMA 4.0
105-20 : -0-09
2 YR
0.3947 : +0.0237
10 YR
2.5321 : +0.0751
30 YR
3.3724 : +0.0584
Pricing as of 6/2/14 3:47PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:00PM  :  ALERT ISSUED: Afternoon is mostly Flat near Weakest Levels; Lingering Reprice Risk
11:44AM  :  ALERT ISSUED: Negative Reprice Risk Increasing yet Again after ISM Data Faux Pas
11:29AM  :  ALERT ISSUED: Negative Reprice Risk Increasing as MBS Push into New Lows
10:51AM  :  Post-Data Improvement Fails to Hold; Back to Weakest Levels
10:06AM  :  Bouncing Back After Weak ISM Manufacturing Data
9:25AM  :  Bond Markets Weaker as Month-End Trades are Unwound

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Victor Burek  :  "from market watch, The Institute for Supply Management has admitted to some reporters that it has incorrectly applied seasonal adjustment factors. The new number they're releasing, 56%, may now be too high. ISM initially reported a reading of 53.2%. Economists who have applied ISM's seasonal adjustment factors say the right number is 55.4%. The economist estimate was 55.8%. "
Victor Burek  :  "so looks like ism is going to revise the revised number"
Matt Hodges  :  "odd question - client leaving their current house (underwater) and counting the full debt against him. Here's the twist - he's in year 8 of a 10 year IO at 2.625% with a cap of 13.25%. Would you use current payment? current pay, assuming amortized or something else?"
Jason Anker  :  "current pay MH"
Ted Rood  :  "Unless UW asks for a copy of the note and gets picky."
Brent Borcherding  :  "You just need the payment for the next 12 months, correct? So a note wouldn't matter, other than requesting another piece of documentation."
Jason York  :  "anyone know the answer to this question: If a veteran is retiring, and doesn’t have his disability rating yet, do you know how long after they close they can apply to be refunded that VAFF amount once their disability rating is approved?"
Jon Kutsmeda  :  "From what I've experienced there isn't a all comes down to from what date they assign the disability rating. From what I've been told multiple funding fees paid post the disability date can be refunded, but I'm not sure if this is true. Also, be advised that the lender/investor is the entity that refunds the funding fee with approval from VA."