MBS MID-DAY: Third Time is NOT the Charm for Bond Markets

MBS Pricing Snapshot

Chase and Wells just repriced. There's been no change in MBS trading levels for the better part of an hour now, and 10yr yields continue to hold under 1.92. Nothing new to report since Sentiment data, but where there's smoke, there may be fire for other lenders despite the lack of market movement.

All components of the Consumer Sentiment report were stronger than expected, with the headline index rising to it's highest levels since July 2007. Treasuries are 1 bps higher since the data at 1.921 and MBS are down a tick few ticks to 102-29. So far the weakness has been more contained than we'd expect given the magnitude of the beat, but it's too soon to assume this will continue to be the case. Early lenders will face reprice risk if we fall 2 more ticks, and even now, the trajectory of trading could be a concern for the edgiest lenders.

Bottom line: definitely some resilience here, relative the the data, but not without a slight increase in risk. We might squeak by with no reprices, but too soon to be sure.

- 83.7 vs 78.0 on the headline
- 97.5 vs 89.9 on 'current conditions
- 74.8 vs 68.1 on 'expectations'
- 99 vs 86 on 12 month outlook
- 'current conditions' highest since oct 2007
- 'expectations' highest since nov 2012
- sentiment headline highest since july 2007

There wasn't much to write home about in the overnight session. Treasuries traded flat to start and then rallied lower in yield during European hours thanks to stimulus hopes. The ECB is rumored to be consulting banking system participants on the practical effects of a negative deposit rate and several ECB governors were out this morning with varying levels of accommodative hints.

Despite the moderate drift lower in yield, 6:30am saw a bounce at 1.86% for 10's and we've been trending into weaker territory ever since. Factoring out overnight gyrations, charts look like they're simply extending yesterday afternoon's trends. MBS opened right in line with y'day's closing levels and are 5 ticks weaker currently at 102-31. 10's are up 2.5bps at 1.9036.

These are probably the most neutral levels of the week on both sides of the market. Despite the "aw shucks" initial reaction to seeing red on the screens in the morning, if it doesn't extend much past here, it would be a logical and necessary step in the "range-finding" that we're looking for ahead of next week's FOMC Minutes. This could be further confirmed by a near-consensus Consumer Sentiment print (or thrown off by a big beat/miss). 25 minutes to go until that one. Forecast calls for an increase to 78.0 from 76.4 previously