MBS OPEN: Near Highest Yields of the Week
So far this AM
- Most overseas indexes higher overnight. NIKKEI, KOSPI, TOPIX , and CAC all higher . Hang Seng and FTSE lower.
- TSYs cheaper in below average volume
- Rate sheet influential MBS prices playing follow the leader. Prices lower
- 2/10s steeper, 2s/5s steeper, 5/10s
slightly steeper, , 10/30s slightly flatter...
- Dollar weaker vs. basket of currencies,
oil more expensive. US stock futures higher
Recap of yesterday
- Mortgage Rates holding steady with shape of yield curve...
- At MBS price highs originators will be looking to lock up some pipeline profits (hedging interest rate risk)....this was the case yesterday as mortgage bankers dumped almost $3billion in supply...which the Fed was, as usual, willing to absorb. Other than that we continue to see light MBS trading with remaining activity coming from UIC strategies (saw more seasoned pools on bid lists yesterday)
- 7 yr auction goes off juuust fine. TSY raised $90 billion this week
- All in all...we have made it through another round of supply unscathed. Logic not prevailing in summer market as day trading the techs prevails
- Less people and less money working in markets
- Dollar prices plummet late in session...S&P rebounds. Currency values driving market at moment
- GDP data: Consumer spending, residential investment, and exports all contracted more slowly than first reported. Government spending, revised higher with boost from stimulus. Larger inventory liquidation than first thought. Inventory liquidation helps with production rebound but downward revisions to personal income are not good sign for consumer led recovery.
In the time it takes too type
- July Personal Income and Outlays data released.
- PERSONAL INCOMES+0.00% vs. +0.2% expectations and -1.1% in June
- PERSONAL SPENDING +0.2% FROM +0.6%
- PERSONAL SAVINGS RATE AT +4.2% IN JULY VS JUNE'S +4.5%
- PCE PRICE INDEX FALLS RECORD 0.8% FROM JULY 2008. 12-MONTH GAIN IN U.S. CORE PCE PRICES SMALLEST SINCE 2003
- TSYs have usual knee jerk reaction to data...chopping about a range. 10 yr TSY yield up to 3.51% then falls back below 3.50%, then jumps back above 3.50%
- Equity futures slightly lower...market essentially shrugs off.
- MBS prices fall to 99-30, PARNERTIA pulls us back to 100-00
The Day Ahead
Although TSYs have kept a watchful eye on the stock lever recently, supply and market flow technicals (cheap vs. rich) have TSY kept prices in a range...albeit in a choppy manner. Mortgage-backs have generally paced the directional behavior of their benchmark big brothers. At the moment the 10yr note is trading near its highest yields of the week...
After ignoring logic all week, we hope the range doesnt breakdown as traders look to return "status quo" to the rates market. This could result in yields pushing back to last Friday's closing marks near 3.56%. If so 100-00 would be a welcomed support level for the FN 4.5...mortgage rates should remain range bound, however given early morning price action your rebates should be a bit lighter this AM.
Stock market volumes remain low as summer draws to an end....the influence of the dollar's value is obvious. Weaker dollar = stronger stocks.