From yesterday's first reprice alert on MBS Live at 9:34am ET:

"There is also the ongoing theme of corporate bond issuance.  Several
more deals have been announced this morning, both at home and abroad. 
Additionally, investors expect issuance to remain active ahead of next
week's Fed Announcement."

New information is coming to light today that confirms just how much of a factor this may have been yesterday.  We're now learning that investors have put down bids totaling more than $70bln for just ONE of this week's big corporate bonds (AT&T).  That doesn't mean the bond itself will be $70bln.  In fact, it probably won't even be more than $20bln, but the level of investor demand for yield speaks volumes about the willingness to sell things like MBS and Treasuries in order to make room for more attractive opportunities. 

As we've often discussed, corporate debt issuance has another negative implication for Treasuries (and by extension, MBS).  The yield that investors receive is usually based on Treasury yields plus a margin.  As such, the issuing firm can protect themselves from rising rates during the issuance process by selling Treasuries. If rates rise and prices fall, they wouldn't be stuck holding a bond paying them below-market interest and could then reinvest the cash to earn a higher rate of return later.  It's a similar principle to MBS being sold when you lock a mortgage! The only way to guarantee terms is to sell the loan (or an equivalent amount of MBS).

Bottom line, corporate issuance creates new selling pressure in Treasuries.  Not all companies hedge in this way, but when issuance is robust, it's certainly a factor.  Not only that, but opportunistic investors KNOW it's a factor and try to take advantage of what they know is coming.  By the time you factor in the fact that corporate bonds serve as an alternative investment to Treasuries/MBS for some investors, it's one of the most profound detractors we deal with on a consistent basis. 

While we can't know what the specific hedging strategies of the AT&T deal have been (or will be), it's likely that it was a big player in yesterday's weakness.  The redeeming quality of this corporate debt hedging is that the hedges are often bought back after the deal is ultimately issued.  So to recap, that's "sell Treasuries, buy some back."   We haven't gotten to the "buy some back" part yet because investors don't yet know if the firms handling the AT&T deal have more hedging to do.  If MBS and Treasuries are still holding inside yesterday's weakest levels by the time AT&T deal is "priced," it would bode very well for us heading into next week's FOMC.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
102-05 : +0-02
FNMA 3.5
104-31 : +0-01
FNMA 4.0
106-29 : +0-01
Treasuries
2 YR
0.5410 : -0.0120
10 YR
1.9700 : -0.0120
30 YR
2.6640 : -0.0010
Pricing as of 4/23/15 12:26PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:44AM  :  Bond Markets Treading Water Ahead of Data

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS- US MARCH HOME SALES NORTHEAST -33.3 PCT, MIDWEST +5.9 PCT, SOUTH -15.8 PCT, WEST -3.4 PCT"
Matthew Graham  :  "RTRS- US MARCH SINGLE-FAMILY HOME SALES -11.4 PCT VS FEB +5.6 PCT (PREV +7.8 PCT)"
Matthew Graham  :  "RTRS- US MARCH SINGLE-FAMILY HOME SALES 0.481 MLN UNIT ANN. RATE (CONS. 0.513 MLN) VS FEB 0.543 MLN UNIT RATE (PREV 0.539 MLN)"
Tim McNerney  :  "JT---exactly...I think we all would prefer better growth and higher wages then customers aren't sweating over an 1/8th in rate to get approved or put an offer in"
John Tassios  :  "We're not so much rooting for bad news, but see it on our end that the avg buyer is very tight on down pmt's, DTI's, student debts, CC debt , etc. This economy is not helping the 80% - 85% with increased wages, nor is it providing high enough starting salaries for college graduates entering workforce to pay back student debts, let alone buy a house. I for one will be happy to see higher bond yields if we had 5% GDP growth and wages going up by 3% - 4% to help qualify more buyers. Right now FTHB is almost non existant."
Michael Baker  :  "Anyone else ever feel conflicted rooting for negative economic news, lol"
Jeff Anderson  :  "Always good stuff, MG. The chart last week still spelled it out that if we don't break 1.84-1.86 there's still no reason not to lock until that happens. But the hope is it will....some day."
JBARRUTIA12  :  "Awesome info this morning MG, thanks!"
Victor Burek  :  "that might help...there was also bad data out of Japan, china and Europe last night"
Matthew Graham  :  "RTRS - US JOBLESS CLAIMS ROSE TO 295,000 APRIL 18 WEEK (CONSENSUS 290,000) FROM 294,000 PRIOR WEEK (PREVIOUS 294,000)"