As of mid-July bond markets seem to have put their foot down with respect to the relationship between long and short term rates.  With the economic recovery and global growth outlook still open to debate--not to mention with global QE efforts ongoing--it makes sense for longer term rates to maintain a reasonable level of sponsorship.  This is in line with the cries we often here for the economy being unable to sustain much of a run higher in rates.

Such a run would seemingly be in contradiction to the Fed's stated intention of raising rates, but trading levels continue to show us how both can live in harmony.  Let's not forget that earlier this year, 2yr yields and 10yr yields were as close together as 120bps.  Today they're only 153bps apart after being closer to 180bps earlier this month.  For the sake of comparison, and to illustrate how much markets have already priced in a Fed rate hike, the spread was over 260bps at the end of 2013. 

In other words, short term rates have been rising relative to long term rates.  This trend had taken a break starting in February, but that "break" was more by way of response to the exceptional rally during 2014.  Rates have done more in the second half of July than any other time during 2015 to bring longer and shorter term maturities closer together.  It's a pure reflection of the very real possibility of Fed rate hikes combined with the still-shaky big-picture global growth outlook.

Traders saw today's stronger inflation-related components in the GDP data and found no new love for short term rates.  Reason being, that inflation data supports a Fed rate hike.  But the longer term downward revisions for GDP supported resilience in longer term rates.  As such 7-10yr yields (and production MBS) remained steady or improved after some morning volatility while 2yr yields are more than 2bps higher.


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
100-06 : +0-06
FNMA 3.5
103-13 : +0-05
FNMA 4.0
106-03 : +0-03
Treasuries
2 YR
0.7270 : +0.0190
10 YR
2.2630 : -0.0270
30 YR
2.9450 : -0.0560
Pricing as of 7/30/15 4:51PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:43AM  :  ALERT ISSUED: Early Negative Reprice Considerations
8:54AM  :  Bond Markets Weaker After GDP, but now Back in The Green

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "most MSAs are nothing of the sort"
Matthew Graham  :  "I believe CFPB has said they (MSAs) need to be a clear 2-way street (i.e. "referral nuetral") with payment matching value of actual services performed (as opposed to number of referrals)"
Brian McFarlane  :  "that is directly from Realtor.org"
Brian McFarlane  :  ""The CFPB has been active in initiating enforcement actions in this area (MSA's) and appears to take the view that these agreements are going to almost always be an improper referral fee, so anyone entering into a MSA will need to exercise extreme caution""
Brian McFarlane  :  "Even NAR is sounding the alarm on MSA's"
Sung Kim  :  "this is a shot across the bow by the CFPB - pay for leads at your own risk"
Jeff Statz  :  "*secretly threatening"
Sung Kim  :  "CFPB is secretly telling all these companies to stop"
Matthew Graham  :  "RTRS- WELLS FARGO BANK - DECISION WAS MADE AS A RESULT OF INCREASING UNCERTAINTY SURROUNDING REGULATORY OVERSIGHT OF THESE TYPES OF ARRANGEMENTS"
Michael Ullmann  :  "wow"
Matthew Graham  :  "RTRS- WELLS FARGO BANK, N.A. SAYS THE DECISION IS EFFECTIVE AUG. 1 AND THE WIND DOWN WILL OCCUR OVER THE FOLLOWING 90 DAYS"
Matthew Graham  :  "RTRS- WELLS FARGO TO WITHDRAW FROM MORTGAGE MARKETING SERVICES AGREEMENTS WITH REAL ESTATE FIRMS AND BUILDERS"
Matthew Graham  :  "Modest pressure from 7yr auction. Yield was 0.8bps higher than expected, but most other stats were in line with averages. Indirect bidding was a bit light at 49% vs 54%"
Matthew Graham  :  "Possibly Greece-related. There were some rumors that IMF was out of the Greek bailout. They've since been denied, but there is other news suggesting Greece might be going to elections, or some such thing. I haven't paid much attention to that noise today, because that's all it is for now."
Sung Kim  :  "What's up with the bund?"