MBS Live Recap: Nice Data-Driven Rally, But Keep Recent False Starts in Mind

Incessant trends toward higher rates bring the mortgage world to the edge of its seat as it waits for the ceiling to be in.  The current trend may not be longer-lasting than many past examples, but it is the steepest/fastest example since the 80s.  No surprise that inflation is the highest since the 80s as well.  Perhaps it's also no surprise, then, that a slightly tamer inflation report helped bonds find their footing early today.  Whether or not this is the turning point we've been waiting for remains to be seen.  Recent false alarms remind us that it's too soon to tell.  The afternoon's timid takedown of the 10yr auction reminds us that it's a complicated question to answer in the first place.

Econ Data / Events
  • Fed MBS Buying 10am, 11:30am, 1pm

  • Consumer Price Index
    year over year..... 8.5 vs 8.4 f'cast, 7.9 prev
    monthly .............1.2 vs 1.2 f'cast, 0.8 prev
    CORE year/year... 6.5 vs 6.6 f'cast, 6.4 prev
    CORE monthly .....0.3 vs 0.5 f'cast, 0.6 prev

Market Movement Recap
08:41 AM

Initially weaker overnight, bonds began to recover as European markets reversed course around 4am ET.  Early domestic traders were better buyers ahead of CPI, but gains continued post-CPI.  10yr down 5+bps to 2.717 and MBS up over half a point.

11:46 AM

Additional gains heading into 10yr auction time frame.  No new market movers.  Just follow-through from this morning's CPI reaction.  10yr down 6.6bps to 2.708.  MBS up 19 ticks in 4.0 coupons (+.59).

01:29 PM

Best levels of the day heading into auction, but big bounce in the other direction (weaker) following the auction.  Still in much better territory on the day, but 10yr yields are up to 2.71 after hitting lows of 2.674.  MBS have already mostly shaken off the post-auction weakness (4.0 coupons still up more than 5/8ths).

04:05 PM

10yr yields held just under their post-auction highs over the past several hours, still down 5bps at 2.723.  MBS outperformed a bit with the steeper yield curve, but are also no in line with their post-auction lows.  4.0 coupons up 18 ticks (.56) at 100-16 (100.50).

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