MBS OPEN: Giving Back Some Gains

By: •

Recap of Yesterday

  • Thinly traded markets...Yom Kippur holiday, no econ data, and quarter end kept flows quiet.
  • Stocks, bonds, dollar, oil all higher in price, no resistance in marketplace...not giving much credence to price trends as trading is not indicative of new bias (yet)
  • S&P recovers what was lost on Thursday and Friday. Fails to break through Wednesday/Thursday morning resistance point (23% retracement of current bullish trend cycle which started on Sept.3)

  • Rates benefit from lack of data, stronger dollar, some from index extension and quarter end.
  • Yield Curve Bull Flattener: long term rates falling faster than short term rates. 2s/10s was 3bps flatter at 230bps. 10/30s testing resistance at 74bps

  • FN 4.0 ends day at 99-02+ yielding 4.1041%
  • FN 4.5 ends day at 101-11+ yielding 4.333%
  • Secondary Market Current Coupon: 4.207% (split: 55% 4.0s/45% 4.5s)
  • Yield spreads slightly wider
  • MG discusses MBS price technicals. 101-07, 100-28, and 100-10 price points are important long term support 
  • Reprices for better reported yesterday afternoon...NOT BROAD BASED

So Far this Morning

  • SHANGHAI -0.33%, HANG SENG +2.06%, NIKKEI +0.91%, FTSE -0.50%, CAC -0.53%, DAX -0.64%
  • 3 month LIBOR fixes higher at 0.2897% vs. yesterday's 0.2825%
  • PRE-DATA Stock Futures: sideways/flat from yesterday's close
  • PRE-DATA 10yr TSY Futures: lower than yesterday's close
  • 9AM DATA: S&P CASE/SHILLER HOME PRICE INDEX
  • 20 city composite month over month change +1.6% in July (consensus +0.5%) vs. +1.4% in June and
  • 20 city composite year over year -13.3% in July 2009 (consensus -14.3%) vs. July 2008
  • 10 city composite month over month change +1.7% in July vs. +1.4% in June
  • 10 city composite year over year change -12.8% in July 2009 vs. July 2008
  • POST DATA DOLLAR: slightly off the highs of the day ....still +0.13%
  • POST DATA OIL: off the lows of the day. still -0.87% on day
  • POST DATA STOCK FUTURES: slightly higher
  • POST DATA 10YR TSY FUTURES: weaker

  • The 10yr TSY note yield is trading -15/32 at 3.33%.
  • The yield curve is mostly unchanged
  • The FN 4.0 is trading -0-05 at 98-30 yielding 4.1194%
  • The FN 4.5 is trading -0-05 at 101-07 yielding 4.3508%
  • The Secondary Market Current Coupon is 4.2235%

Here is the FN 4.5 two day....

THE DAY AHEAD

  • Fed conducts open market operations at 1015AM: TSY coupon purchase, May 2012 to November 2013 maturities
  • Although more action in anticipated in today's session....it is still expected to be a relative quiet day again as quarter end is looming.
  • MBS are still playing follow the leader with benchmark TSYs and swaps.
  • Yield curve bias is to hold near current spread levels....if curve steepens we expect to see it flatten back out to near current levels.

Yield Curve
2s/5s: 1bps STEEPER at 136bps
2s/10s: 1bps STEEPER at 231bps
5s/10s: UNCHANGED at 95bps
5s/30s: 1bp FLATTER at 169bps
10s/30s: UNCHANGED at 75bps

Consumer confidence has strong possibility to be a market moving event. Data released at 10AM. STAY ALERT FOR AN ALERT

MBS, TSY, LIBOR QUOTES

PS...of the handful of rate sheets we've seen, pricing is unchanged/a few bps better. But we dont expect this to be a trend. Prepare for higher mortgage rates