Top and bottom line: war is good for bonds/rates.   The risk of war had increased after last week's US attack on the Iranian general and flared further overnight after the Iranian attack on air bases in Baghdad.  By not inflicting any US casualties, the attacks allowed Iran to have their retaliation (something that had been a point of uncertainty) without starting a war.  Trump confirmed as much today.

Thus, paradoxically, the seemingly significant missile attacks last night actually paved the way for the most significant de-escalation so far.  Markets are trading it accordingly with Treasuries much weaker on the day, stocks much stronger, and MBS lagging the Treasury move.

Economic data was glossed over and the afternoon's 10yr Treasury auction didn't have much of an impact despite being noticeably weaker than expected.  

The risk for bonds in the bigger picture is that this marks a turning point in the general momentum that lead yields lower into the new year.  In other words, perhaps the natural inclination would have been for 10yr yields to move up and over 1.95% without last week's US/Iran flare-up.  With yields already back to 1.87%, it makes sense to defend against that possibility.


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
101-16 : -0-09
Treasuries
10 YR
1.8760 : +0.0510
Pricing as of 1/8/20 4:45PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:20PM  :  Small End-Of-Day Blip On "Baghdad Rockets" Headline
2:47PM  :  ALERT ISSUED: Negative Reprice Risk Increasing Again
11:47AM  :  ALERT ISSUED: Negative Reprice Risk Increasing as Trump Soothes Markets

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "
New MBS Huddle Released
Why Are Bonds Weaker Today If We Almost Went to War?"
Matthew Graham  :  "and I explained this in the Day Ahead. It's really simple and happening exactly as feared/predicted"
Clay Schmeisser  :  "exactly... makes zero sense... this is not over"
Andy Pada, Jr.  :  "hmmm...I'm not sure if the markets are as smart as I thought. Why would we be "risk off" when armed forces have been elevated to high alert and travel advisories been issued, including the cancellation of US Soccer team's training in Qatar."

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, Jan 08
7:01 MBA Purchase Index w/e 263.2 255.6
7:01 Mortgage Refinance Index w/e 1713.7 1375.0
8:15 ADP National Employment (k)* Dec 202 160 67
13:00 10-yr Note Auction (bl)* 24