MBS OPEN: Rates Correcting After Home Price Data
Recap of Yesterday
- Rates end session near intraday lows. Traders push yields higher to make room for more TSY supply. $123 billion this week. Sell off a function of light calendar, SUPPLY, and concerns Fed will raise key benchmark rates
- TSY auctioned $7 billion 5yr TIPS notes at high yield of 0.769% . Bid to cover strong at 3.1. Indirect bidders take 47.8% of issuance...larger than normal
- Chicago Fed National Activity Index: -0.81 in September vs. -0.65 in August. Manufacturing and Income better
- MBS prices move lower after the 10yr breaks long time 3.50 support. Lenders reprice for the worse, mortgage rates higher. MG Discusses
- 5pm marks: FN 4.0 97-17, FN 4.5 100-08, FN 5.0 102-28, FN 5.5 104-22, FN 6.0 105-25+
- MBS trading was slow. Up in Coupon (fuller coupons like 6.0s) performed the best as the yield curve steepened and dollar prices plummeted.
- Secondary Market Current Coupon ends day at 4.44%. The CC yield is +87bp/10yr TSY yield, +194/5yr TSY yield, +68/10yr SWAP rate. The FN 4.5 yield was +90/10yr TSY yield and +71/10yr SWAP rate
- MBS trading was SLOW.
- 10yr TSY heads out door at 3.558%. 2yr done at 1.029%. 2s/10s at 253bps...that's a steep yield curve!
- Stocks traded lower, showing signs of weakness into month end. The S&P closed -1.17% at 1066...below the all important 1075 level. The Dow closed -1.05% at 9,867. NASDAQ ends -0.59% at 2,141.85
- Senate leaders state the FTHB tax credit will be extended. READ MORE
So Far this Morning
- SHANGHAI -2.83%, HANG SENG -1.86%,NIKKEI -1.45%, TOPIX -1.67%, CAC +0.5%, DAX +0.27%, and the FTSE +0.54%
- Goldman Sachs sees 'False Bottom' in Housing, Merrill Sees 'Treat'. READ MORE
- 9AM Econ Data: S&P/Case Shiller Home Price Index....BETTER THAN EXPECTED
MONTH OVER MONTH S&P/CASE SHILLER HOME PRICE INDEX: +1.2% VS. CONSENSUS +0.7% VS. +1.6% JULY
YEAR OVER YEAR S&P/CASE SHILLER HOME PRICE INDEX: -11.3% AUG 2009 VS. CONSENSUS -11.9% VS AUG 2008
Before the release of 9am S&P home price data, S&P futures were sideways, -1.25 at 1065, holding below the all important 1075 level. After the data...not much change.
In a quiet overnight session, much like stocks, the 10yr TSY futures contract didnt make much corrective progress either...ahead of AM data, prices were slightly improved but mostly flat near yesterdays lows. In the cash market, the 2yr TSY note was trading +0-00 at 99-31 yielding 1.012% while the 10yr TSY note was +0-02 at 100-20 yielding 3.550%. The 2s/10s curve was flatter at 253.8bps. After the data release...the 10yr is improving, now +0-07 at 100-25 yielding 3.531% while the 2 year is +0-01 at 100-00 yielding 1.008%. The 2s/10s curve is flatter at 252.3bps.
Ahead of data, the FN 4.0 was +0-00 at 97-17 yielding 4.253% while the FN 4.5 was trading +0-02 at 100-10 yielding 4.465%. The secondary market current coupon was 4.433%, slightly tighter vs. the 10yr and 5yr TSY note, wider vs. 10yr swaps. After data, the FN 4.0 is +0-05 at 97-22 yielding 4.237% while the FN 4.5 is +0-05 at 100-13 yielding 4.453%.The secondary market current coupon is lower, now at 4.421%
Although we have experience a breakdown of the range, we are still operating in a "WE HAVE NO IDEA ABOUT THE LONG TERM OUTLOOK" trading environment, which means short term biases still moderate positions.
The extension of recent TSY market selling is a function of supply and perceptions of the Federal Reserve's policy intentions. The Fed's exploration of reverse repos last week, the story in the Financial Times, a few hawkish comments from the bully pulpits of Fed presidents, and the end of the Fed's Treasury Purchase Program...have all combined to raise skepticism about the Federal Reserve's intentions to adjust monetary policy strategy.Unfortunately while econ data is still "better than expected", we will continue to battle the perception that the Fed is planning a rate hike sooner than many anticipate.
While supply/demand dynamics are changing in the benchmark rates market (FED Treasury Purchase Program over), dont forget how remarkably strong the bond market has been in the face of "better than expected" econ data, dont lose sight of the fact that we have been insulated from the relentless rallies occurring in equities.
That said we will continue to state that the market has not changed its short term trading bias, prices are not trending on a BIG PICTURE outlook. This implies, when trading/locking/floating, the news will often times serve as an excuse to execute a short term trade strategy. It's about intraday momentum and short term trending...not about the macro big picture. Yesterday there was no reason to slow the selling....there was no floor under the market, so prices fell and rates rose. We are hopeful that we see some correction either during or after this week's auction cycle.
At 10am Consumer Confidence data will be released. At 1pm the Treasury will auction $44 billion 2yr notes