MBS Live Recap: Panic In The Bond Market

It's no mystery that longer-term Treasury yields have been trending higher since August (it's all we can talk about at times) and that mortgage rates have largely been able to ignore that trend.  But that blissful ignorance is increasingly hard to maintain--a fact that hits home on days like today.  For a variety of reasons, today was a big bad day for Treasuries.  As feared, MBS were painfully unable to outperform, and the same can be said of mortgage rates compared to MBS prices.  Bottom line: rates rose sharply.  Multiple lenders repriced for the worse.  This is part of an ongoing, widespread reevaluation of economic and monetary outcomes as told by the bond market. There's no guarantee that things get better before they get worse. 

Econ Data / Events
  • Fed MBS Buying 10am, 1130am, 1pm

  • NY Fed Manufacturing 12.1 vs 6.0 f'cast, 3.5 prev

Market Movement Recap
08:28 AM

Bonds sharply weaker overnight, including heavy selling in futures on Monday.  Snowball momentum.  Global reflation/rotation trade (shifting gears into growth mode.  Buy stocks, sell bonds).  Strong data in Europe.  Bank of Japan reaffirms ETF buying commitment.  US stimulus on track to be bigger than expected.  Global stocks soaring.  10yr up big to 1.25+.  UMBS 2.0 down 30bps+

10:47 AM

More weakness after the Fed's regularly scheduled Treasury buying operation showed an ongoing preference for shorter-dated paper (this was a 20-30yr operation and they bought mostly 23-24yr paper).  Dealers put bonds on sale immediately thereafter and 10s consequently jumped to the highs of the day, up 6+ bps at 1.27+.  MBS aren't too much worse for the wear (compared to this morning), but are nonetheless at their lows with 2.0 coupons down almost 3/8ths.

02:30 PM

Bonds have been treading water near their weakest levels since the last update, but MBS lost additional ground just now with 2.0 coupons off by more than half a point.  Afternoon hours are often less liquid for MBS and illiquidity can exacerbate strength and weakness alike.

03:58 PM

More movement of the clock, more selling of the bonds!  10yr yields cracked 1.30% and 2.0 UMBS fell more than 5/8ths of a point.  No new motivations--just ongoing momentum.  Widespread negative reprices.  

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