MBS OPEN: Overnight Rally Receives Warm Welcome

By: Matthew Graham •

If you look at the chart this AM, you'll notice we get ALL the gains you see BEFORE 830AM data.  In other words, 830 marked the best levels in the bond market so far today, this week, this month, and this year.  So instead of MOVING markets this AM, it was (and still is) up to data to confirm the overnight rally.  So far, it's received a warm welcome (though too early in the day to say it won't get a bit colder)

So why the overnight rally?  A few reasons, but one stands out, just like it did yesterday.  From MBS MORNING:

" it should be noted that the bond market might like to have a few more Republicans on the Hill to filibuster heated debates. From a BIG PICTURE point of view, republicans generally favor less government spending...the bond market would consider this a sign of less government borrowing in the future and therefore less TSY supply and firmer yields across the curve"

It seems odd to be paying so much attention to a senate race in the context of the bond market right?  But the reason AQ raised the filibuster issue yesterday is that Brown's seat takes away the super-majority from the democrats, and the tacit implication is that will help reign in spending in various ways because conservatives are thought to be, well... conservative?  Ha!  I'm the same as AQ on politics, so I'll leave it there.  Bottom line, debt, spending, and inflation are big issues at the moment.  The 'pub seat viewed as net positive in that fight. 

Other Events Leading To Higher Opening Prices

  • BofA and Morgan Stanley post earnings losses
  • China ordered some banks to decrease lending (yeah, they can do that...)
  • BOE (bank of England) meeting minutes reveal unanimity on decision to keep policy steady.  Allowing US to respond confidently when our mom asks us "if all our friends are doing it..." questions...
  • Japan PM saying he wants to stay away from yield spikes in their government's debt when creating spending plans to support their economy. 

The chart of the day (maybe the week), has to go to 10yr futures...  They tell a perfect story of a shell-shocked bond market coming into the new year that has slowly, gradually, and steadily been poking its cute little head out from the wreckage, but still has much rebuilding to do.

Folks, it really doesn't get any than an MG analogy to wrap up the big picture...  (ok.... so maybe it gets WAY better, but just give me this one thing!!!)

Back to reality...


FHA Increases Upfront MIP Fee; Raises Credit Score Requirement; Reduces Seller Concessions

 

The overnight rally sets up some heady territory for bonds to confirm.  So far they've done a decent enough job, but with data this AM weaker, but not excessively weaker, there's a decent chance of some retracement before you get your first rate sheet.  Even if we get back to 100-24, say, that would be just fine with us as it keeps that "ratcheting up" of bond prices SLOW AND STEADY.