MBS Continue To Outperform As Treasuries Level Off

10:24AM (MBS Live) - Bond Markets Continue Weakening After Latest Data. MBS Outperform

Longer-dated Treasury yields continued to climb this morning after the latest round of economic data showed improved construction spending and ongoing, albeit moderate strength in the manufacturing sector. 10yr yields have risen 4 bps since 8:40AM and now stand at 1.84. 

MBS are faring much better by comparison with Fannie 3.5's down only 2 ticks at the moment to 103-26 (all-time highs are only 3-4 ticks higher). We're probably not far enough into the day, nor have we experienced sufficient losses to be concerned about reprices for the worse, but the general, underlying tone at the moment is one of weaker bond markets and stronger stocks. 

Obama is expected to be talking about expanding government refinance initiatives in about half an hour.

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That update from about half an hour ago provides some background to the current state of trading.  MBS continue to outperform, but are a few ticks higher now, currently 103-29, in line with all-time highs.  (incidentally, we've noted more heavy MBS origination this week and looking at the chart below, it seems like a pretty logical time for that to occur given the resistance at all time highs as well as potential trend-channel resistance).

Rather than being on a predetermined path of weakness, 10yr yields have paused the recent trend, are moving sideways, and seem ready to go in either direction. 

While elements of the chart above do give the impression of a connected stock lever, keep in mind that the broader phenomenon of late has been quite the opposite.  The following chart overlays the S&P with 10yr Yields:

There's no real analytical point to this chart other than it could be interesting to some, and perhaps speak to the level of risk aversion in debt markets (i.e. everyone crowded into the biggest, safest sovereign debt).