First thing in the morning, it looked like we had a chance to see another trade-war-driven bond rally.  A Reuters story that detailed the US/China communication breakdown hit the market around 4:30am, causing both stocks and bond yields to move quickly lower.  But by 7am, investors signaled they'd had enough.  There's only so much markets are willing to brace for when the worst case scenario is something that will play out in gradual fashion.

In other words, the worst case scenario is a gradual knock to global economic growth due to trade barriers as opposed to something like a change in central bank policy that has an immediate impact and a quantifiable implication for future cash flows.  Markets are thus better-served to react to such things gradually

The best case scenario, however, is the opposite.  A trade deal carries significant negative consequences for bonds, so it's not too surprising to see them balk when headlines make a deal seem slightly more likely.

Bonds were back in barely-weaker territory ahead of the 10yr Treasury auction.  The auction itself was terrible--one of the worst in years.  It's actually a pleasant surprise that yields only rose by about 2bps following this one.  But they did so all at once.  

As expected, MBS fared better than Treasuries in the face of a sell-off, but were nonetheless forced into weaker territory. Many lenders issued negative reprices.  Those who didn't will be under increased pressure to adjust rate sheets tomorrow morning, unless we see a very friendly bounce overnight.


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 3.5
101-01 : -0-04
Treasuries
10 YR
2.4850 : +0.0370
Pricing as of 5/8/19 5:23PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:21PM  :  ALERT ISSUED: Negative Reprices Becoming More Likely
1:03PM  :  ALERT ISSUED: Negative Reprice Risk Increasing After Weak 10yr Auction
9:35AM  :  Bonds Gyrate on Trade News, But Generally Weaker Since 7am

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
John Tassios  :  "so far...MBS underperforming with this selloff, similar to the underperformance per the bond rally yesterday"
Ted Rood  :  ""Lock 'em if you got 'em""
Matthew Graham  :  "weakest 10yr auction since November 2016 at least."
Matthew Graham  :  "F"
E S  :  "What’s the grade professor OO?"
Matthew Graham  :  "RTRS - PRIMARY DEALERS TAKE 35.2 PCT OF U.S. 10-YEAR NOTES SALE, DIRECT 11.45 PCT AND INDIRECT 53.34 PCT"
Matthew Graham  :  "RTRS - HIGH YIELD AT LATEST 10-YEAR NOTE SALE WAS MORE THAN 1 BASIS POINT ABOVE ITS 1 P.M. WHEN-ISSUED LEVEL - REUTERS DATA"
Matthew Graham  :  "RTRS - U.S. 10-YEAR NOTES BID-TO-COVER RATIO 2.17, NON-COMP BIDS $21.32 MLN"
Matthew Graham  :  "RTRS - U.S. SELLS $27 BLN 10-YEAR NOTES AT HIGH YIELD 2.479 PCT, AWARDS 3.82 PCT OF BIDS AT HIGH"
Matthew Graham  :  "10yr auction preview: expected yield 2.469 (based on when-issued yield at 1pm), Average bid-to-cover has been 2.47, Indirect bidding average 65%-ish. More info here: Treasury Auction Jargon, Definition, and Significance "

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, May 08
7:00 Mortgage Refinance Index w/e 1238.5 1228.3
7:00 MBA Purchase Index w/e 270.2 259.4
13:00 10-yr Note Auction (bl)* 27