MBS RECAP: Bond Markets Rally As Eurozone Braces For Impact
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
The domestic hours, like so many past examples, turned out to be relatively contained by the time European markets had their say. This time, they said good things to MBS and Treasuries, namely that there's still a bit of concern over the handling of the Cyprus bailout and a lot of concern over what headlines may come tomorrow from Italy. We can talk all about all sorts of probable considerations for today's bond markets, but at the end of the day (and at the beginning for that matter), it's been all about Italy.
Between stocks, Eurodollars, Bund yields (those are German 10yr notes), and Italian credit spreads, US Treasuries exhibited the highest degree of correlation to Italian credit spreads. In fact, both returned to their post-italian election levels for the first time since March 5th. This favoring of Italy is readily apparent in the chart. Teal and Green are Germany and the Euro whereas White and Yellow are 10yr Treasuries and Italian spreads. Forgive the Treasuries their early month trespasses higher after stronger economic data and focus on how they broke away from the other two in late February and again since mid-March, before ultimately surging lower much more quickly today (note that we have Italian spreads INVERTED so that LOWER=More Risk)
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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Afternoon 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 afternoon.
2:56PM :
ALERT ISSUED:
Back To Middle Of Today's Range. Negative Reprice Risk?
Here's one of those "early warnings" where we're not yet at prices that suggest widespread negative reprice risk, but heading in that direction for more than an hour. Fannie 3.0s are down to 103-04 from earlier highs of 103-09. Some lenders put out rate sheets when prices were 103-08, meaning we're right on the edge of that eighth of a point line in the sand.
Both Treasuries and MBS are trending weaker together now and if Fannie 3.0s hold at 103-03 or below, negative reprices would be slightly more risky with a move to or below 103-00 constituting the most risk..
Both Treasuries and MBS are trending weaker together now and if Fannie 3.0s hold at 103-03 or below, negative reprices would be slightly more risky with a move to or below 103-00 constituting the most risk..
1:21PM :
Uneventful 5yr Auction Leaves Gains Intact, Maybe More
More than 3 hours after first reaching 103-07, Fannie 3.0 MBS continue to operate within a tick of that price (which is 12 ticks higher on the day). 10yr yields pivoted in the mid 1.85's intraday and are once again testing mid 1.83 resistance (currently 1.868).
The auction itself was average in most regards with slightly lower outright demand (2.73 bid to cover vs 2.84 recent average) but balanced out by a slightly lower than expected yield award (.760 vs .764). Indirect bidding, which is a loose proxy for foreign demand, comprised roughly 45% of the auction vs 40% on average.
Bond markets held their ground in the immediate wake of the auction, but have improved very slightly since then. The gains look like a simple unwinding of a bit of pre-auction defensiveness. In other words, the "normal stuff" (German Bunds, Euros, Italian spreads) had all been suggesting slightly lower Treasury yields than were actually seen at around 12:50. Treasuries may have been holding off due to the upcoming auction, and are now catching back up with the pack.
That "pack," as it were, has since bounced. Thus, the gains have been minimal, amounting to about 1bp in 10yr Treasuries and 1 tick in Fannie 3.0 MBS. This leaves the door open for positive reprices, but most lenders released their first rate sheets near the highs of the day. Most of the reprice potential would rely on stability near these highs of the day, and even then, would not be a widespread phenomenon unless we see 2-3 more ticks of improvement.
The auction itself was average in most regards with slightly lower outright demand (2.73 bid to cover vs 2.84 recent average) but balanced out by a slightly lower than expected yield award (.760 vs .764). Indirect bidding, which is a loose proxy for foreign demand, comprised roughly 45% of the auction vs 40% on average.
Bond markets held their ground in the immediate wake of the auction, but have improved very slightly since then. The gains look like a simple unwinding of a bit of pre-auction defensiveness. In other words, the "normal stuff" (German Bunds, Euros, Italian spreads) had all been suggesting slightly lower Treasury yields than were actually seen at around 12:50. Treasuries may have been holding off due to the upcoming auction, and are now catching back up with the pack.
That "pack," as it were, has since bounced. Thus, the gains have been minimal, amounting to about 1bp in 10yr Treasuries and 1 tick in Fannie 3.0 MBS. This leaves the door open for positive reprices, but most lenders released their first rate sheets near the highs of the day. Most of the reprice potential would rely on stability near these highs of the day, and even then, would not be a widespread phenomenon unless we see 2-3 more ticks of improvement.
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.
Christopher Stevens : "REPRICE: 2:00 PM - Chase Better"
Matthew Graham : "RTRS - FED'S KOCHERLAKOTA SAYS FED SHOULD DO MORE TO SPUR ECONOMY, CURB UNEMPLOYMENT, SEES ONLY MODERATE U.S. GROWTH OVER NEXT 2 YEARS "
Jeff Anderson : "The banks opening tomorrow in Cyprus s/b interesting. "Hi, thanks for coming in. We don't actually have any Euro's to give out, but if you want to give us some more, we'll gladly take them.""
Mike Drews : "anyone else noticing that rates aren't much better today?"
Matthew Graham : "Bit soft on the demand side, but not overly so. A bit lower on the yield award washes that out. Indirects in line. VERY uneventful "B" auction."
Matthew Graham : "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.73, NON-COMP BIDS $24.98 MLN "
Matthew Graham : "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 0.760 PCT, AWARDS 52.11 PCT OF BIDS AT HIGH "
Matthew Graham : "1pm WI was .764, down to .761 now"
Matthew Graham : "5 yr Auction coming up shortly. These have mostly stunk recently, with only November and September coming in under expected yields in the past 10 months. Bid to cover has been recently fairly stable between 2.72 and 2.88 with an average of 2.84. Indirect bids have been around 40%, but december was 32%. The last 2 auctions have been only 0.1 bps off the mark."
Christopher Stevens : "REPRICE: 12:55 PM - Wells Fargo Better"
Matthew Graham : "Pianalto is neutral to slightly hawkish"
Jason Anker : "good questiosn, hawk or dove and how much so"
Andy Pada : "Is Pianalto considered "extreme?""
Matthew Graham : "fun fact: Fannie 3.0's, also on 200 day average"
Matthew Graham : "fun fact: 10yr yields are right on their 200 day moving average at the moment"
Matthew Graham : "RTRS- PIANALTO SAYS A FEW MORE MONTHS OF 200,000 JOB GAINS, AMONG OTHER FACTORS, MAY LEAD TO JUDGEMENT THAT LABOR MARKET CONDITIONS HAVE IMPROVED SUBSTANTIALLY "
Matthew Graham : "RTRS- PIANALTO SAYS ECONOMY STILL FAR FROM FULL EMPLOYMENT OF RESOURCES, MONETARY POLICY STILL NEEDS TO BE ACCOMMODATIVE "
Scott Rieke : "Why is it we laugh at Eurogroup central bank statements, but we heed the call of our own? A lie in any language is still a lie"
Matthew Graham : "RTRS- FED'S PIANALTO SAYS TAPERING OF ASSET BUYS DUE TO SIGNIFICANT IMPROVEMENT IN OUTLOOK FOR JOBS "COULD EMERGE BEFORE LONG" "
Victor Burek : "i heard obama just signed the sequester cuts into law, so they are a done deal"
Andy Pada : "hate to get off the current non domestic topic, but what's up with the sequester? did I hear correctly that there is some continuing resolution that was signed for the next 6 months?"
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