• Bonds continued holding ultra-narrow post-Brexit range until 3pm
  • At that point, Treasuries spiked aggressively and MBS eventually followed
  • Initial culprit was likely the Oracle corporate bond issuance
  • Markets knew this was coming, but they didn't know when or how big
  • It was sooner and bigger than expected, thus putting pressure on other parts of the bond market and adding to snowball selling momentum

If you like to click links and learn more about the bigger picture bond market motivations, and if you haven't already read it, check out our primer on corporate bond issuance HERE.  If you're not into clicking links, just think about corporate bonds like any other bonds.  They cost money and offer a return on investment.  They're a bit riskier than risk-free Treasuries in the best cases, but the yields are high enough to compensate investors for that risk.  

In fact, in this market, investors are hungry for yield, so when a big corporate that's not likely going anywhere offers a big batch of corporate debt with yields that are quite a bit higher than Treasuries, it garners a ton of demand.  Investors knew Oracle was coming out with a big bond offering today or tomorrow, but they were accounting for a size of $8-10 bln.  The actual size came in at $14 bln, meaning investors who wanted to cash in on these juicy yields were quickly forced to liquidate other holdings in order to come up with the cash.  $4-6 bln in unexpected selling is a lot for bond markets to handle in the heat of a moment.

As you may have guessed, a good amount of the aforementioned "liquidated holdings" were in US Treasuries.  The selling pressure came right at a vulnerable time of day when liquidity is lighter and when traders are on guard for potential shifts in momentum relating to month-quarter end.  This exacerbated the negative momentum.  It was if the Oracle deal was the alarm bell to close out June and/or Q2 positions and head out of town for the holiday weekend.  Sure, not every trader is taking an extra 2 days off, but you'd be surprised how much of an impact such things can have.  

The bottom line was a rapid move higher in 10yr yields--at least relative to the last few days of flatness.  In the bigger picture, we'd still be waiting to see a break above 1.53% in order to suggest a broader shift toward higher rates.  MBS didn't pay attention at first, but that didn't stop a few lenders from repricing.  MBS began paying more attention as the sell-off continued, thus bringing more lenders into the negative reprice picture.  

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
103-15 : -0-05
10 YR
1.5170 : +0.0560
Pricing as of 6/29/16 4:44PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:03PM  :  Addendum on Selling Pressure (Oracle Corporate Deal)
3:50PM  :  ALERT ISSUED: Negative Reprice Risk Getting More Serious
3:07PM  :  ALERT ISSUED: Treasury Spike, Some Negative Reprice Implication Regardless of MBS Losses
10:33AM  :  Bonds Stay Bid Despite Stock Bounce

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "I just remember a few reprices in the past few months where the move was in Treasuries."
Gavin Luckman  :  "Take it back? I'm still trying to figure out why it got worse?"
Sung Kim  :  "btw, MBS down 1 tic, but we are def going to see any reason for our friends in secondary to take some back"
Matthew Graham  :  "definitely a CME 3pm close issue. We might hear about the source of the move in 10-20 minutes."
Victor Burek  :  "not seeing any breaking news...just looks like a big move due to the tight range of couple days"
Gavin Luckman  :  "was just about to ask that"
Brian Bockholdt  :  "What's up with the sudden minor slippage in yield?"