MBS MID-DAY: Selling Trend Emerges After Opening Stronger
Please note the timestamp in the pricing snapshot below (11:09am EST). The mid-day post will always pull a snapshot of current prices between 11:00 and 11:10am, with the actual publication of the commentary following 20-60 minutes later. On mornings with light movement in MBS, the mid-day tends to come out sooner and on mornings with more movement, it will come out later, especially when negative reprices are required for the MBS Live community. Today is one such morning, and reprice alerts went out at 8:33am and 8:53am, each incrementally increasing the risk. MBS Live subscribers get these alerts in real-time and they will appear in the afternoon 'MBS-RECAP' here on the free site.
As for the market conditions that brought about the alerts, MBS and Treasuries began the day in good shape--both of them at least holding their ground relative to yesterday's closing levels before improving into 9am. They topped out there and went sideways until European markets led Treasuries higher. The Fed buying operation in Treasuries was also going on during this time and dealers offered up relatively large chunk of 7-10 year maturities ($13.68 bln, of which the Fed bought $3.31 bln). Italy's Economy Minister said Italian banks don't need EU aid right around the time the results of the purchase operation came out. Not to be outdone by goings-on in Europe and the US, news regarding Japan hit right around the same time, saying that Japanese investors are favoring French sovereign debt over US Treasuries because the French debt offers more attractive yields after hedging costs.
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Also similar to yesterday's session was the moderating presence of the European trading sessions, which rained in yields to roughly the same extent. On the downside, US 10's only made it to 1.90 before the domestic open as opposed to 1.89 last night.
There were two pieces of ancillary econ data in the 7am hour with a slight rise in NFIB's Small Business Confidence and weekly Chain Store Sales. Tradeflows overwhelmed any suggestion made be the data as NFIB was a non-issue and weaker Chain Store Sales were released during an uptrend in equities that didn't so much as bat an eyelash. Pre-market Treasury trading took that opportunity to reinforce the 1.90% overnight floor, opening at 1.905 15 minutes later. MBS opened at 103-00.
Just a shade more weakness was seen through most of the 8am hour. 10's drifted up to 1.912 before a big block buyer in 30yr futures helped send things in the other direction. That momentum was met with more than enough selling interest at 1.895 and we now sit at 1.903 again. MBS are up 5 ticks on the morning at 103-02 and S&Ps just opened roughly in line with yesterday's close.
There's no more data on the calendar for today, but as will be the case for the next 2 weeks, there will be scheduled Fed Treasury buying from 10:15-11:00am. Those scheduled operations are always mostly priced in to trading levels (because they're not only scheduled, but also come with an estimated range of $$ to give markets an idea of how much the Fed will buy). Even then, there can be some additional volatility during those times depending on what dealers decide to offer up to the Fed, how much the Fed chooses to buy, which securities they choose to buy, and what the rest of the trading community is left to infer from that. Sometimes it's significant. Sometimes it passes without a trace.
- Export Prices -0.7 vs -0.2
- Petroleum import prices -1.9 vs -0.6
- Imports ex-petroleum -0.1
- Market Reaction: none. Bond markets haven't reacted to this report in a long time.
U.S. import prices fell 0.5 percent in April, the U.S. Bureau of Labor Statistics reported today, following a 0.2 percent decrease in March. Lower prices for both fuel and nonfuel imports contributed to the declines in each month. Prices for U.S. exports decreased 0.7 percent in April after a 0.5 percent decline in March.