MBS Live Recap: Too Strong to Give Up Hope. Too Weak to Rest Easy

- New week, new month, new chance for yields to confirm a ceiling after last week's rout

- Mixed results for bonds today with early weakness and a late bounce (especially for MBS)

- Very poor liquidity in MBS (buyers and sellers oftentimes FAR apart on their desired prices)

- 100% focus on UMBS 2.5 coupon (why?)

- Bottom line: not enough weakness to give up hope.  Not enough strength to rest easy.

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

  • ISM Manufacturing 60.8 vs 58.8
    (ties highest level since 2004)

  • ISM Prices Paid 86.0 vs 80.0

  • Construction Spending 1.7 vs 0.8 f'cast

Market Movement Recap
08:53 AM

Flat in Asia then moderately weaker in Europe.  10yr low = 1.38%.  Highs of 1.456% this morning, but already pushing back down (1.43% currently).  MBS opened weaker, but seem eager enough to hold a majority of Friday afternoon's gains.  So far, so good, despite the weaker start (down only 0.06) now.

10:18 AM

Balmy ISM (ties highest level since 2004).  Much higher prices.  Big beat on construction spending, and bonds are...  RALLYING?!  Either the broader bounce narrative is dominating or traders just aren't worried about March 2021 as much as March 2022.  Either way, we'll take it.  10yr back to unchanged, and MBS up 6 ticks (.19).

11:29 AM

Dropping off a bit now, but MBS are highly illiquid (wide spread between bid and ask).  No news or events behind the trade.  Bonds just shied away from committing to the morning rally.  10yr +3bps at 1.436 and UMBS 2.5s down 1 tick (-0.03) at 103-22 (103.69).

03:32 PM

The noon hour was basically the bottom for MBS prices.  Treasuries didn't weaken much after that either.  While the latter are still flat at moderately weaker levels, MBS are staging a stronger comeback, with 2.5s on the verge of breaking even and 2.0s having already done so.  Liquidity is HORRIBLE.  Buyers and sellers are routinely more than an eighth of a point apart on 2.5 coupons (makes the true price a bit of a moving target).

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