From 2010 on, the point about the interconnectedness of global financial markets has increasingly been driven home.  It was a fun time  for me, analytically, because I felt like those of us who understood the gravity of the European situation had an unfair advantage when it came to understanding what was moving markets.  

Traders are totally hip to those vibes these days and that's the first reason that rates would care about something like a foreign currency.  In this case, however, it's not the currency valuation itself that carries implications for the bond market.  Rather, it was the symbolic nature of the move (i.e. China decided to weaken its currency to levels not seen in more than a decade) that caught the market's attention.

Bottom line, it's China's way of doubling down on the trade war, and it has immediate effects on commerce and confidence.  It increases the odds of recession.  It decreases inflationary pressure.  It makes Fed rate cuts more likely (and more likely to be justified).  It's the kind of thing China might do if they were no longer interested in playing trade war games and simply had to get back to work (in that sense, it vastly decreases the likelihood of a grand deal any time soon).

Bonds thrived on these developments overnight and then rode a wave of followthrough momentum during the domestic session.  Much of that followthrough came courtesy of massive stock losses (that money needs a safe place to hide and bonds have room!).  10yr yields hit the low 1.7's by the end of the day.  MBS only picked up half a point due to the prepayment speed implications of this drop in rates (faster speeds = lower returns for investors = less relative demand for MBS).  The mortgage world is also relatively much more averse to volatility than, say, the Treasury complex.


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
101-28 : +0-14
Treasuries
10 YR
1.7140 : -0.1410
Pricing as of 8/5/19 4:51PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:38AM  :  Modest Gains After ISM, But Case Being Made For Resistance
12:07AM  :  Big Bond rally and Amazingly Awkward Chinese Central Bank Comments

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Michael Pennington  :  "“Once the dust settles, however, we’re talking about a move to the “mid 3′s” for best-case 30-year fixed rates,” said Matthew Graham, chief operating officer of Mortgage News Daily. “Can rates go lower from here? Sure! Rates can always go lower.”"
Matthew Graham  :  "RTRS - FED FUNDS FUTURES IMPLY TRADERS SEE 45% CHANCE KEY U.S. RATES FALLING TO AT LEAST 1.00-1.25% IN APRIL 2020, UP FROM 22% LATE ON FRIDAY - CME GROUP'S FEDWATCH"

Economic Calendar
Time Event Period Actual Forecast Prior
Monday, Aug 05
10:00 ISM N-Mfg PMI * Jul 53.7 55.5 55.1
10:00 ISM N-Mfg Bus Act * Jul 53.1 58.3 58.2