MBS MID-DAY: Languishing In Weaker Territory, Outlook Uncertain
By:
Matthew Graham
•
MBS Live: MBS Morning Market Summary
The only thing we can be sure of at the moment is that bond markets are in weaker territory. They were weaker overnight. They were incrementally weaker this morning. They moved sharply weaker after Durable Goods data, and have remained in weaker territory since then, though they do appear to have at least "paused" the directional romp to their worst levels in many months. For MBS , that month tally only extends back to early September, but 10yr yields hit their highest levels since late April 2012--just over 2%. Highs and lows have been in a consolidating, triangular pattern since then, which adds some emphasis to the direction of the breakout (in other words, there are two competing trends resting along the higher lows and lower highs, set to collide in the early afternoon. Whichever line is broken is more likely to be the "defeated" short term trend). Data and events are done for the day with the exception of the 2yr Note Auction at 1pm, though these haven't caused sufficient market movement to impact MBS for over a year.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
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Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.
10:17AM :
Slight Bounce Back After Significantly Weaker Opening Levels
While it doesn't necessarily feel safe to hope for any sort of inspiring rally this morning, bond markets have at least held their ground for now.
After weakening at a quick pace for the duration of Friday's session, Monday's overnight trading was only moderately unfriendly by comparison with 10yr yields drifting a bp or two higher by the domestic open. A stronger-than-expected Durable Goods report launched 10's above 2% for the first time since April 2012 and took Fannie 3.0 MBS to 103-00.
The weakest levels were seen just ahead of the opening bell for equities where futures had already apparently topped out after a moderately positive response to Durable Goods. Stocks have generally been falling since then, with S&P futures off 7 points from their pre-open highs.
A weaker-than-expected Pending Home Sales report added to the negative momentum for stocks, but disconcertingly, bond markets haven't been as interested in responding. There's an ominous short term inflection point at 1.97 in 10yr yields, and we have yet to even attempt a break below.
Analogous levels in 3.0 MBS would be 103-09 to 103-10. We're somewhat closer to a test on both sides of the market with 10's at 1.9739 and Fannie 3.0s currently at 103-08. From there, the next pivot points lie at Friday's outer limits of 1.9523 and 103-12 respectively.
After weakening at a quick pace for the duration of Friday's session, Monday's overnight trading was only moderately unfriendly by comparison with 10yr yields drifting a bp or two higher by the domestic open. A stronger-than-expected Durable Goods report launched 10's above 2% for the first time since April 2012 and took Fannie 3.0 MBS to 103-00.
The weakest levels were seen just ahead of the opening bell for equities where futures had already apparently topped out after a moderately positive response to Durable Goods. Stocks have generally been falling since then, with S&P futures off 7 points from their pre-open highs.
A weaker-than-expected Pending Home Sales report added to the negative momentum for stocks, but disconcertingly, bond markets haven't been as interested in responding. There's an ominous short term inflection point at 1.97 in 10yr yields, and we have yet to even attempt a break below.
Analogous levels in 3.0 MBS would be 103-09 to 103-10. We're somewhat closer to a test on both sides of the market with 10's at 1.9739 and Fannie 3.0s currently at 103-08. From there, the next pivot points lie at Friday's outer limits of 1.9523 and 103-12 respectively.
10:04AM :
ECON: Pending Home Sales Weaker Than Expected
- Pending Sales -4.3 vs +0.3 consensus
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 4.3 percent to 101.7 in December from 106.3 in November but is 6.9 percent higher than December 2011 when it was 95.1. The data reflect contracts but not closings.
Lawrence Yun , NAR chief economist, said there is an uneven uptrend. "The supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis," he said. "Buyer interest remains solid, as evidenced by a separate Realtor survey which shows that buyer foot traffic is easily outpacing seller traffic."
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 4.3 percent to 101.7 in December from 106.3 in November but is 6.9 percent higher than December 2011 when it was 95.1. The data reflect contracts but not closings.
Lawrence Yun , NAR chief economist, said there is an uneven uptrend. "The supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis," he said. "Buyer interest remains solid, as evidenced by a separate Realtor survey which shows that buyer foot traffic is easily outpacing seller traffic."
8:39AM :
ECON: Durable Goods Much Stronger Than Expected
- Headline Durable Goods Orders +4.6 vs +1.8 Consensus
- Excluding Transportation +1.3 vs +0.7 Consensus
- Market reaction: bond markets didn't wait long before giving up. 10r yields hit their highest levels since April 26th and MBS fell a quick 4 ticks from 103-10 to 103-06, bringing the total losses to 9 ticks on the day.
New orders for manufactured durable goods in December increased $10.0 billion or 4.6 percent to $230.7 billion, the U.S. Census Bureau announced today. This increase, up seven of the last eight months, followed a 0.7 percent November increase. Excluding transportation, new orders increased 1.3 percent. Excluding defense, new orders increased 1.2 percent.
Transportation equipment, up following two consecutive monthly decreases, had the largest increase, $8.1 billion or 11.9 percent to $75.9 billion.
- Excluding Transportation +1.3 vs +0.7 Consensus
- Market reaction: bond markets didn't wait long before giving up. 10r yields hit their highest levels since April 26th and MBS fell a quick 4 ticks from 103-10 to 103-06, bringing the total losses to 9 ticks on the day.
New orders for manufactured durable goods in December increased $10.0 billion or 4.6 percent to $230.7 billion, the U.S. Census Bureau announced today. This increase, up seven of the last eight months, followed a 0.7 percent November increase. Excluding transportation, new orders increased 1.3 percent. Excluding defense, new orders increased 1.2 percent.
Transportation equipment, up following two consecutive monthly decreases, had the largest increase, $8.1 billion or 11.9 percent to $75.9 billion.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.
David Silvernail : "6 payments "
Curt Sandfort : "for a VA IRRRL, am I required to wait 6 months from note date, or does veteran need to make 6 payments?"
Victor Burek : "none here yet andy"
Andy Pada : "how much worse are you seeing on rate sheets today from Friday's last rate sheet?"
Matthew Graham : "I'm trying to find new and different ways to say this, but the "economy" doesn't have to "recover" for rates to rise."
Lion : "Has the economy officially recovered? Is employment below 6.5%? "
Ted Rood : "On the bright side, Fed is getting a lot more for their money!"
Ted Rood : "Yeah, "expected this week" turned into "realized in first hour of trading!""
Matthew Graham : "I don't like to assume anything about the future when it comes to trading levels. We're currently in the upper middle of trend of rising yields from the beginning of December. There's room on either side and I would have reiterated that volatility was expected this week, but it seems to already be here."
B-C : "MG is it safe to say without some unfriendly US or EU data there is no reason to push back?"
Matthew Graham : ""has to" was a prevalent thought as we hit multi-month weakness at the beginning of Dec 2010"
Matthew Graham : "depends on what your definition of "has to" is."
Moshe Berg : "But seriously, there has to be some pushback at some point "
Victor Burek : "thursday morning we were at 1.80"
Moshe Berg : "How long ago were we at 1.81? Last Tuesday? "
Jeff Anderson : "2.00 feels like the ex-girlfriend I never wanted to see again. Therapy was costly."
Jude Bridwell : "GM all. The bloodshed continues"
Matthew Graham : "RTRS - U.S. DEC DURABLES EX-TRANSPORTATION +1.3 PCT (CONS +0.7 PCT) "
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