Bonds began the day in relatively unchanged territory versus yesterday's close and soon encountered the slightly stronger CPI data (2.2 vs 2.1% for CORE CPI).  This gave the appearance of selling pressure for a few minutes, but as expected, it was mild and temporary.  In fact, 10yr yields and MBS were at their best levels of the day less than an hour later.  2yr yields, however, didn't see the same sort of bounce.  One might argue that the CPI data is only important inasmuch as it failed to give the Fed a clear green light to cut by 50bps at the next meeting (something a lot of people think might actually happen).  

The 2yr weakness combined with the 10yr recovery brought the yield curve dangerously close to 0.00....  a level that doesn't matter in the slightest except that a lot of people will talk about it as if it does.  To be clear, I'm not saying an inverted or super flat yield curve doesn't matter, simply that there's no functional difference between 0.02% and 0.00% in the big picture.  

In any event, the day's biggest move followed fresh headlines suggesting a delay in the most recently announced tariffs on Chinese goods.  Stocks and bond yields jumped.  The magnitude of the weakness was well within recent norms, but MBS voiced their protest of the unexpected volatility by weakening against Treasuries progressively in the afternoon (they had been outperforming earlier and this simply brought that performance back to neutral).

It continues to be the case that the mortgage world will need to see lower volatility in the broader bond market and an absence of big drops in Treasury yields in order to close the gap.


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
101-11 : -0-09
Treasuries
10 YR
1.7020 : +0.0620
Pricing as of 8/13/19 6:05PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:30PM  :  ALERT ISSUED: Negative Reprice Risk Remains
9:50AM  :  ALERT ISSUED: Negative Reprice Risk Increasing After Tariff Updates
8:39AM  :  Moderately Weaker After CPI

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "There was also a big corporate deal that launched at the same time that may have added to the weakness just after 2pm. 2pm is also a popular time of day for day trading types and algos. Finally, there was a big block trade (selling 5's and buying 30s) that happened right before the bounce (but that may or may not be related). Any of these things or a combination of them could account for such a move."
Matthew Graham  :  "A move of that size in this environment can happen for any reason. One trader could decide to make a certain move and it could create a mini-snowball more than big enough for 3 ticks."
Jon Leslie  :  "what reversed"
Ted Rood  :  "Amazing what lost business does to companies' risk tolerance."
Dan Draitser  :  "We will resume insuring loans that have a representative credit score of less than 700 and a DTI exceeding 45%, effective with mortgage insurance applications we receive on or after Tuesday, Aug. 13, 2019. This change applies to loans with a valid DU® Approve or Loan Product Advisor® Accept response. We’ll post our updated Underwriting Guide and underwriting summaries with this change on or before Friday, Aug. 16, 2019."
Dan Draitser  :  "So MGIC peeling back the overlay they implemented less than 12 mos ago? DTI 45+ and 700 fico"

Economic Calendar
Time Event Period Actual Forecast Prior
Tuesday, Aug 13
8:30 Core CPI (Annual) (%)* Jul +2.2 2.1 2.1
8:30 Consumer Price Index (CPI) (%)* Jul +0.3 0.3 0.1
Wednesday, Aug 14
7:00 MBA Purchase Index w/e 247.9
7:00 Mortgage Refinance Index w/e 2003.0
8:30 Import prices mm (%)* Jul 0.0 -0.9
8:30 Export prices mm (%)* Jul 0.0 -0.7