MBS OPEN: Yield Curve Flatter After Auctions

By: •

Recap of Yesterday

  • Class A notification day. Sept MBS coupon in settlement process. We are now watching October FN/FRE MBS coupons
  • October FN 4.5 closes at 100-24
  • MBS outperformed TSY heading into auction. TSYs rally on after auction...MBS cant keep up
  • 10yr TSY note yield falls as low as 3.33
  • TSY auctions $12bn 30yr bonds. High yield 4.238%, 2.92 bid to cover ratio
  • Yield Curve: 2s/5s flatter, 2s/10s flatter, 5s/10s flatter, 5s/30s flatter, 10s/30s flatter.
  • Jobless Claims less than expected. 550,000 vs. revised 576,000 in previous week. Continuing Claims 6.088m vs. revised 6.234m
  • Trade Deficit wider than expected. $31.96bn vs previous $27.49bn
  • Stocks up for fifth straight day. S&P +0.96% to 1043. DOW +0.84% to 9627. NASDAQ +1.15% at 1043.
  • VIX lower again...
  • Dollar index weaker.
  • Oil lower than higher, than lower....ends day higher after data shows reduced inventories and IEA raises demand forecast.
  • Gold closes under $1,000
  • BoE leaves rates unchanged, no changes to Quantitative Easing program

So far this AM

  • FTSE, DAX, CAC, HANG SENG, KOSPI, SENSEX, and SHANGHAI all higher. NIKKEI and TOPIX lower
  • US Data: AUG Import prices +2.0% (expected +1.0) vs. JULY -0.7%
  • US Data: AUG Export prices +0.7% (expected +0.1%) vs. JULY -0.3%
  • Dollar Index weaker. Oil prices higher. Gold over $1,000 again
  • Stock and TSY futures higher since yesterday's close. Stocks holding gains. TSYs lost gains...but holding near low side of overnight range.

  • Overnight TSY volume above average
  • MBS trading slow during settlement. Benchmark big brothers are leading MBS prices higher.
  • Lenders should have "the drop" baked into pricing already...but dont be surprised if a few rate sheets are unexpectedly worse this AM. (4.75 should pay)

Here is two day showing the drop...READ MORE ABOUT NOTIFICATION DAY

THE DAY AHEAD

  • MBS will take directional guidance from yield curve
  • Expect MBS to lag TSY rally...especially with prices and relative value being rich
  • TSY buying yesterday served to slow building momentum of bearish technical indicators.
  • 10 yr: 3.32 is firm resistance...3.32% = 118-04 on 10 yr futures contract. Here is why 3.32% is firm resistance...a break out over 118-04 is needed to confirm rally

Lastly...

Its 9/11

MND pays tribute to a few fallen MBS friends...

Dany Song

Eamon McEneaney

Truck

Timmy O'Brien

Feel free to leave stories or just a name of any friends or family members who were lost on 9/11