The easiest way to facilitate a mid-day update today will be to simply copy and paste a morning update from MBS Live.  Before I do that, and because I know the following content isn't super tangible, here's a bullet point breakdown:

  • Bond markets largely unchanged overnight, then began weakening into domestic hours
  • Key culprit is corporate debt issuance which causes selling pressure in Treasuries
  • Potential supporting actors include an earlier speech from Fed Vice Chair Fischer
  • Treasuries are leading weakness and MBS are outperforming again (typical when corporate issuance is the driver)

Without further ado, here's the morning update that MBS Live members received at 9:30am:

There's nothing bond markets can do about a relentless slate of corporate debt issuance apart from simply take the lumps as deals are announced and hope to claw back some of the losses when momentum subsides. 

(Refresher: How Does Corporate Debt Issuance Affect Mortgage Rates?)

While the hedging-related aspect of corporate issuance should technically be net neutral for bond markets, the problem is the order in which the hedging takes place.  Quite simply, that's "sell now, buy back later."  The fact that the selling comes first means it has more of an opportunity to establish momentum. 

That's compounded by two other factorsFirst, the "announcements" of corporate debt offerings (where the hedging/negativity come in) tend to be more concentrated than the pricings (where the hedging can start to be unwound).  That means a concentrated period of announcements presents a clear negative bias whereas deal pricings make for more isolated cases of positivity. 

The second factor compounding the net-negative effect of corporate issuance is the fact that some traders will begin "making room" to buy the new corporate debt by selling other assets, which can include Treasuries or MBS.

With all that out of the way, suffice it to say that corporate debt issuance is taking a toll this morning.  The overnight session wasn't bad, apart from the fact that Treasuries didn't improve after losing ground yesterday.  Bond markets managed to begin the day in unchanged territory and only began losing ground after domestic trading was firing on all cylinders. 

In addition to the corporate issuance pressure, comments from Fed Vice-Chair Fischer looked like they had an impact earlier this morning, but it's anyone's guess as to why.  As an aside, that's the highly-respected new guy as opposed to the Dallas Fed President Fisher who slings analogies about "feral hogs" and "monetary cocaine."  Fischer's comments around the time of bond yield lift-off included the following sentiments:

- Germany needs to let its demand grow more rapidly

- Japan is doing the right thing to address its problems

Maybe markets view Fischer throwing his hat into the ring of support for European sovereign debt buying in some roundabout way.  It's also possible that markets didn't much care about those comments and the weakness was simply due to the bigger Treasury trading accounts that come online at 8:20am. 

Either way, we're in weaker shape, with 10yr yield just now edging up to new highs for the day (+2.28bps at 2.264).  As is ever the case when corporate issuance pressure is involved, MBS are outperforming, down only 5 ticks in Fannie 3.5s at 103-30.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
100-20 : -0-09
FNMA 3.5
103-28 : -0-07
FNMA 4.0
106-19 : -0-04
2 YR
0.5360 : +0.0320
10 YR
2.2820 : +0.0460
30 YR
3.0000 : +0.0370
Pricing as of 12/2/14 12:53PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:30AM  :  Bond Markets Weaken Into Domestic Session;Corporate Debt Delivers on Promise of Pain

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "Direct TV was one of the biggies earlier. We're getting pummeled."
Matthew Graham  :  "2 more corporate deals announced in the last 5 minutes. Small little companies like Amex and Morgan Stanley "
Ted Rood  :  "Agreed, Jeff. Good thing my little old lady borrower refused to lock yesterday because she "read somewhere that rates would be getting better.""
Jeff Anderson  :  "Ugly 2 day chart. Definitely going to keep my screen on the 1 month chart. Maybe the 1 year to keep me in the Holiday spirit. GM, all."
Sung Kim  :  "dear mr. and mrs. potential future homeowner, please read what i am writing, even though i have no clue about which i write - go apply for a mortgage, if you are willing to have your body drained of blood, because well, i said so, even though reality is different"
Hugh W. Page  :  ""
Hugh W. Page  :  "And another article about how "Basic Costs Squeeze Families". I thought we were all worried about deflation? "
Hugh W. Page  :  "bingo"
Sung Kim  :  "and the media try to explain why people dont apply for mortgages, hmmm, could it be their sensationalism?"
Hugh W. Page  :  "I was a little surprised too"
Christopher Stevens  :  "I read that Hugh. Appraisals will always be an issue I think. Hard to take 'judgement' aspect out of it. "
Sung Kim  :  "what kind of bogus statistic is that"
Sung Kim  :  "1 in 7 inflated values by 20% or more?"
Hugh W. Page  :  "gm - article in WSJ this morning I was surprised to see about "Dodgy Home Appraisals Making a Comeback"."