Stocks and bonds continued on their divergent paths today thanks to the European Central Bank.  While there had been some speculation that the ECB would indicate some sort of curtailment of its bond buying program (yes, this happens a lot), the central bank instead reiterated its commitment to finishing the program.  ECB President Draghi also made it a point to discuss China's limited impact on the European banking system. 

Stocks soared.  The movement was unequivocally a direct result of the ECB press conference, though it was aided along the way with several earnings reports.  Bonds were another story--at least in the US.

While the European bond market did just as well as equities markets (i.e. German Bund yields dropped significantly), US Treasury yields barely managed to hold flat on the day.  In fact, 10yr yields were slightly higher for most of the morning.  Strong stocks were part of the reason, but we've seen stocks and bonds diverge enough recently to advise us against leaning on that as an explanation. 

We know there was a good amount of corporate bond issuance today, with big deals from JP Morgan and Coca-Cola.  The ill effects became all the more clear when the deals 'priced' (meaning they were finally able to be traded).  Because the corporate bond 'pricing' phase means that there is no longer a need for the issuer to sell Treasuries in order to hedge interest rate exposure, there can be a small but noticeable relief rally afterward.  That was the case today as 10's rallied down to 2.003 by 2pm.

Throughout the day, MBS outperformed Treasuries.  This was partly to do with the corporate issuance having a more direct effect on Treasuries, but just as much to do with the yield curve.  That refers to the varying levels of performance across the spectrum of Treasury maturities.  In today's case, shorter term debt outperformed, and MBS have a slightly shorter implied duration compared to 10yr Treasuries.   At the close, Fannie 3.0s were up 3 ticks at 101-24 while 10yr yields were perfectly flat at 2.028.


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
101-24 : +0-03
FNMA 3.5
104-20 : +0-03
FNMA 4.0
106-27 : +0-02
Treasuries
2 YR
0.6050 : -0.0200
10 YR
2.0280 : +0.0000
30 YR
2.8630 : -0.0050
Pricing as of 10/22/15 5:06PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:57AM  :  Bond Markets Near Unchanged After Draghi; MBS Outperforming

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "seems to be political posturing (in my cynical opinion). There's really zero risk of US ever not being able to pay its Treasury debt. It really makes no sense to postpone a 2yr auction considering the short term lump sum would more than offset any new interest payments. Perhaps there's some line of thinking at Treasury that I'm not understanding. "
aaron meyer  :  "is there any commentary on it?"
Marc Perez  :  "Thx TB: seems like after the financial crisis that fewer and fewer borrowers opt to go with ARMs. You and I know that FNMA/GOVY ARM is not the same as a Hybrid Option ARM from back in the day but the avg Joe on the street may not get that. "
Matthew Graham  :  "yes"
aaron meyer  :  "MG is it true the 2 yr auction is being postponed next week?"
Timothy Baron  :  "Quite a few refis into 15 yrs though."
Timothy Baron  :  "I see very little demand for ARMs. "
JEREMEY BECK  :  "selling lots of 7/1 arms these days and 30 yr. haven't done a 15 yr in months."
Victor Burek  :  "much more lower terms"
Marc Perez  :  "Question for the Originators: Are you seeing an increased appetite for ARMs in your pipeline or are your borrowers continuing to opt for lower term mortgages (ie. 15, 10yr)? "
Victor Burek  :  "last i saw .50"
Andy Pada, Jr.  :  "where is bund?"