MBS OPEN: Down After Data

By: • Tue, Sep 15 2009, 8:31 AM

Recap of Yesterday

TSYs followed Friday's price action with another rates sell off...albeit in low volume in both sessions (low volume = new norm?)
Long end of yield curve takes worst beating...no floor in that sector of curve (low volume)
2/10s steeper. 10/30s flatter
No follow through of last week's TSY rally...indicates range trade persists
TSY traders acting on supply/demand technicals...day trader's paradise. DONT TRY TO MAKE SENSE OF THE MOVES...we are watching high volume marks/market profile
Stocks reverse overnight selling. S&P makes new 2009 high....stocks reversed sentiment on no data? It's a traders world...
4.0s and 4.5s lose the most. FN 4.0 -0-11, FN 4.5 -0-08. (To be expected when long end of curve takes a beating)
MBS/TSY yield spreads tighter in rate sheet influential coupons, wider in fuller coupons
Over $2 bn in originator selling yesterday. Fed takes care of supply
No Asian bid in marketplace...no big deal until they aren't buying when we'd normally be buying (Chinese central bank not day traders)
MBS volume about the same as its been for the last 30 days...
Cheaper prices good for rate sheet influential MBS

So far this AM

FTSE +0.78%, CAC +0.92%, DAX +0.50%, NIKKEI +0.15%, HANG SENG -0.31%, TOPIX -0.16%, SHANGHAI +0.23%
830 domestic data was not bond friendly. PPI higher than expected, retail sales and NY Manufacturing better than anticipated..
Producer Price Index: + 1.7% vs. consensus +0.8% and prior -0.9%
Core Producer Price Index (less food and energy): +0.2% vs. +0.1% consensus and -0.1% prior
Retail Sales: +2.7% vs. +2.0% consensus and -0.1% prior
Retail Sales ex autos: +1.1% vs. +0.4% expected and -0.6% prior
Empire Manufacturing: 18.88 vs. expected 14.00

Following the data...

The dollar is stronger, oil is cheaper, stock futures are higher, and TSY futures are lower...

After falling as far as 100-06, the FN 4.5 is -0-06 at 100-12....

2s vs 5s: 146bps

2s vs 10s: 252bps

5s vs. 10s: 106bps

10s vs. 30s: 81bps

The Day Ahead

READ MND THE DAY AHEAD
Fed buys TSYs this morning. Feb 2020 to Feb 2026
Class B MBS notification begins
Range Trading persists...low volume too? We think so...dont see what would bring money off sidelines.
Real money likes cheaper MBS dollar prices