MBS MID-DAY: Choppy Morning, More Spread Widening, But Holding Lows

MBS Pricing Snapshot

Treasuries just spiked back up to the recent highs in 10yr yields just over 2.155 and MBS threw their arms up and stormed off the playing field--refusing to participate, given the moment to moment volatility in Treasury tradeflows. Additionally, MBS-specific volatility provides some negative feedback looping into broader bond markets and everyone 'loses,' so to speak.

About the only non-losers are those who have bet on increasing volatility and MBS underperformance. Speaking of the latter, even though Treasuries did NOT make another new high in yields just now, MBS hit new lows, with Fannie 3.0s briefly hitting 100-03. Again, it depends on the initial rate sheet timing, or whether or not you can still lock overnight prices, but the reprice outlook is incrementally another notch worse than it was at the last update.

Please note: the volatility is occurring early enough in the day that many lenders won't be affected from a reprice risk standpoint (the losses will already be baked in to their first rate sheets if they were out any time after 9:40-ish.

The extent to which this is a "reprice alert" depends heavily on whether or not you already have prices this morning or otherwise retain access to yesterday's pricing. In those cases, this is an alert, considering MBS were off a quick 7 ticks, but have regained their footing. Fannie 3.0s are down to 100-08 and 10's had spiked quickly to 2.155 from 2.135, but moved back under 2.15 moments ago.

Alll we have to go on by way of attribution is a rather abrupt shift in tradeflows in Treasuries at the 9:30am opening bell for stocks. A few minutes after that, stock markets made similar moves higher, so the conclusion of "asset allocation trading" (sell bonds / buy stocks) sort of suggests itself here.

Causality is less important than the movement, however. On that front, we'd note that the losses look to be finding support here, so we wouldn't "freak out" just yet, but you may reserve the right to freak out if 10's break back above 2.15 or MBS slip below 100-07 in 3.0s or 103-06 in Fannie 3.5s.

Treasuries began the overnight session in slightly stronger territory and drifted sideways for most of the Asian hours. A big move higher in the Nikkei and a break back above 100.00 in the Yen didn't put it's recently normal amount of pressure on Treasuries, but when combined with a choppy and somewhat weaker European session, was enough to guide US bond markets to slightly weaker opening levels.

Not much has happened since then as the Trade Deficit data proved to be of little inspiration. There's no remaining significant data this morning and unsurprisingly, 10yr yields are smack dab in the middle of their post-FOMC-Minutes trading range at 2.13+. At least today, the comparative underperformance in MBS isn't quite as stark. Fannie 3s are down 3 ticks at 100-14 and 3.5s are down 3 as well, at 103-13.

- Trade Deficit $40.29 bln vs $37.13 bln previously
- Exports +1.2 vs March -1.0
- Imports +2.4 vs March -3.7 - Oil Import prices down 10.8 pct year over year

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total April exports of $187.4 billion and imports of $227.7 billion resulted in a goods and services deficit of $40.3 billion, up from $37.1 billion in March, revised. April exports were $2.2 billion more than March exports of $185.2 billion. April imports were $5.4 billion more than March imports of $222.3 billion.

In April, the goods deficit increased $3.2 billion from March to $58.6 billion, and the services surplus increased $0.1 billion from March to $18.3 billion. Exports of goods increased $1.8 billion to $131.1 billion, and imports of goods increased $5.0 billion to $189.7 billion. Exports of services increased $0.4 billion to $56.3 billion, and imports of services increased $0.3 billion to $38.0 billion.

The goods and services deficit decreased $6.3 billion from April 2012 to April 2013. Exports were up $3.1 billion, or 1.7 percent, and imports were down $3.2 billion, or 1.4 percent.