For the second straight day, US/China trade relation uncertainty dominated financial markets.  Volume was up across the board with Treasury yields and stock prices (S&P futures, intraday) dropping to the lowest levels in more than a month.  Stocks eventually bounced back a bit in the afternoon, but nonetheless remain very close to 1-month lows.

At issue was last night's news that Trump's weekend trade tweets had teeth.  In other words, there really was a reason to announce increased tariffs on China to be implemented this Friday.  Between Mnuchin and Lighthizer, we were informed that the trade talks had soured and that China had reneged on previous agreements.  Lighthizer additionally confirmed the play to raise tariffs.  

Now... all of the above COULD be part of an elaborate negotiation strategy, but that's not the sort of speculation that bond traders can afford to bet on.  Instead, they're forced to account for possibilities just as they'll be forced to react swiftly to any potential headline that makes everything "all better."  The fact that it would really only take one headline to do that is incredibly unsettling, and a major reason for a major spike in implied volatility metrics so far this week.

MBS don't like implied volatility!  MBS are also coping with a big surge in prepayment activity reported yesterday afternoon.  Between those two factors, there was no love for the mortgage market today, despite a 5bp drop in 10yr yields.  On the slightly brighter side, if something does come along to take the wind out of Treasuries' sales, MBS would be less affected, but that's still a fairly lousy consolation prize.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
101-05 : +0-02
10 YR
2.4480 : -0.0520
Pricing as of 5/7/19 6:15PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:44AM  :  Rally Extends Overnight, But 2.47% Offering Resistance

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "A deal clearly wipes out the gains. If bonds were firmly betting on "no deal," yields would be into the 2.2's."
Hugh W. Page  :  "The moral of the conspiracy theory though is watch out for any signs of a deal that wipes out our gains in bonds :)"
Timothy Baron  :  "I don't think DT wants a trade deal too soon. Better to see the economy really popping (presumably as a result of a deal) in summer/fall 2020."
Hugh W. Page  :  "Conspiracy theory time. Somebody put a bunch of shorts on the market and convinced POTUS to announce more Tariffs knowing full well the market would tank but maybe they really know behind the scenes they're close to a deal and they'll simply reverse those shorts just in time to benefit when the market reverses. I'm sure it couldn't possibly be true :)"
Scott Valins  :  "MBS are unfazed"
Timothy Baron  :  "MBS finally following the leader (barely)."

Economic Calendar
Time Event Period Actual Forecast Prior
Tuesday, May 07
13:00 3-Yr Note Auction (bl) 38
Wednesday, May 08
7:00 Mortgage Refinance Index w/e 1228.3
7:00 MBA Purchase Index w/e 259.4
13:00 10-yr Note Auction (bl)* 27