Today saw a good, old-fashioned pre-Fed "lead off."  Or perhaps that should be a BAD lead off, considering bond markets lost considerable ground.  Whether it's the Fed, or NFP, or one of a handful of other major potential market movers, these so-called "lead offs" happen.  They haven't been as prevalent lately because there hasn't been an event with high enough stakes to cause a pronounced example.

Lead-offs can happen for a variety of reasons.  At their most basic level, lead-offs signify a leaning in a certain direction--one which the big event seems increasingly likely to confirm.  For instance, a lead-off might start on the Wednesday of an NFP week if Wednesday's data shifts the balance of NFP expectations in some major way.  That's probably the most common example, but that's not the way today's went down.

If today's lead-off marked the same sort of shift in expectations, we would have seen a few things that we didn't see.  First of all, we would have needed much stronger economic data in order for it to change anyone's opinion about what the Fed would do.  As it happened, Retail Sales data was tepid, at best, Industrial Production was weaker than expected, despite decent positive revisions to last month's report, and the NY Fed Manufacturing data was downright ugly.  Today definitely wasn't about the data.

Even then, if markets were still trying to lean toward an increasingly likely Fed hike, 2yr yields would have led the weakness across the Treasury curve.  As it happened, 30s were the worst performer, followed by 7s.  So today definitely wasn't about increased rate hike prospects, but those 7yr Treasuries provide a great clue and here's why: 7's are illiquid to begin with.  They're younger.  There are fewer of them.  Volume is always lower.  Heck, they don't even have a Futures contract in Chicago, unlike all of the other Treasury notes and bonds!

The point about 7s is that they were outperformed by both 5s AND 10s.  They were the only Treasury security that stepped out of line (where longer duration bonds were getting hit hardest).  When the least liquid Treasury security is underperforming, it's a good cue for us to consider the liquidity situation, or--in this case--lack thereof. 

Today was about blinking, flinching, freaking out...  Whatever you want to call it, there's a certain amount of anxiety that a certain amount of the market can handle.  There's always some "flinching" going on as we approach extremely important events, but trading positions aren't typically so entrenched and so dependent on the major event for their next cue.  Normally, the rest of the bond market could accommodate a small influx of panicked sellers moving to the sidelines, but today wasn't normal. 

There was a bit more interest in moving to the sidelines than normal, and quite a bit less interest among buyers to scoop up the bonds that sellers were trying to get out of.  That only led to more sellers wanting to get out, only to be met with the same lack of buyers.  Add all that together on a day with limited liquidity and relatively light volume to start with, and the pace of the move quickly becomes intense.  DON'T make the mistake of thinking it has anything to do with the nature of Thursday's outcome.  The only thing today's sell-off says about today is that markets have a lot of anxiety about Thursday.  Making any conclusion beyond that is to see meaning where there is none.

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
99-29 : -0-20
FNMA 3.5
103-06 : -0-17
FNMA 4.0
105-29 : -0-13
2 YR
0.8110 : +0.0810
10 YR
2.2920 : +0.1090
30 YR
3.0710 : +0.1160
Pricing as of 9/15/15 6:41PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:22PM  :  ALERT ISSUED: If You Haven't Seen A Reprice Yet, You Will (Some Moving on to Round 2)
1:06PM  :  ALERT ISSUED: Negative Reprices Increasingly Likely
12:32PM  :  ALERT ISSUED: Negative Reprice Risk Considerations
9:22AM  :  Slightly Weaker After 'Acceptable' Data

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Hugh W. Page  :  "Buyer must acknowledge receipt of CD and then you wait 3 days to close."
Hugh W. Page  :  "Also, I think most lenders will send out CD's early to get the clock ticking on disclosure time frames. "
Hugh W. Page  :  "I had TRID training yesterday. CD doesn't need to be signed but likely most lenders will require it to be signed."
Sung Kim  :  "furthermore, fannie doesnt even require signed HUD-1s evidence sale, just need a HUD-1, so the same would apply to the CD"
Compliance is Watching Me  :  "some lenders will not send the final CD until the loan is final approved. Cant final approve without signed closing disclosure from closing of departure residence."
Oliver Orlicki  :  "i dont think it is either"
Sung Kim  :  "cant be accurate"
Compliance is Watching Me  :  "the way I read it now, at least 3 days from the sale of departure residence until closing on new house, unless you qualify with both payments, and dont need the proceeds."
Compliance is Watching Me  :  "any feedback on if TRID will hamper or eliminate concurrent closings?"
John Sheadel  :  "Only for those that jumped the gun. Those that waited until later should have taken it into account. "
Sung Kim  :  "We def getting two rounds today"
Bryce Schetselaar  :  "my customers look to other, cheaper options before taking non-qm rates"
Hugh W. Page  :  "We are doing non QM although we just had one very aggressive program (underwriting) taken away."
Andy Pada, Jr.  :  "how many of you are doing non-QM loans? "