MBS Follow Treasuries Down, Mixed Data

By: Matthew Graham •

Take a look at the graph below and you can see that not only did we move a bit lower over the weekend, but the losses have extended to today.  Even with stocks paring gains currently, MBS remains down by 11/32nds or so.  So plan on at least .375 worse today from Friday. 

 

As for news,

  1.  We began the day with the Case Shiller Index for March which showed a year over year decline of 14.4%.  The month over month drop was 2.2%.  Though bad, this is in line with other home price data available (except New Home Data below), so not much of a market mover
  2. New Home Sales in April posted 526k, which was actually higher than expectations.  Another important component of the report was that the median new home price actually rose 1.1% from April a year ago (but recall that New Homes have been hardest hit as of late).  Combined with slightly decreasing inventory, this has sparked some hope for a recovery (though if you hold your breath, you run out of air)
  3. Consumer Confidence, well, there is none.  We've now fallen to 57.2 from 62.8, which is the lowest in 16 years.  Consumer's inflation outlook is at an all time high and likely to rise concomitantly with fuel prices.  This data is normally good for the bond market, but between Friday afternoon and this morning, bonds are fighting a losing battle.  Why?

There is a combination of factors keeping bonds down today.  Some of the more salient points are

1. Oil prices dropped significantly this morning which traders perceived as stimulative to stocks.  Though it has not had the impact that traders had perhaps hoped for, it nonetheless damaged the bond markets before stocks even opened.

2. Trade Flow...  Prices on MBS and treasuries had gotten fairly high (as we discussed), and once those upper ceilings were being tested traders often wish to cash-in those gains as opposed to trying to ride the market even higher when it is more likely from a technical standpoint that it will go lower.  Combine this with a rapid drop of stocks last week and the ingredients were there for a bit of a sell-off in bonds.

Since 9AM eastern we've held steady in a tight 3/32nd trading range.  Floating makes sense for the rest of the day.  MBS have tended to follow treasuries today, so that's not a bad place to look for indications of mortgage rate movements.  And of course, stay tuned here!