MBS MID-DAY: Back Into Positive Territory After Philly Fed Data

By: Matthew Graham
MBS Live: MBS Morning Market Summary
At the risk of being too dramatic, bond markets were spiraling out of control to some extent, heading into this morning's Philly Fed data.  That followed a stronger-than-expected Jobless claims report.  10yr yields were as high as 2.837 before Philly Fed came out significantly weaker than expected.  There was only a modest rally reaction at first, but it erased the spikiest part of the earlier selling spree.  After dealers sold 5yr Treasuries to the Fed in their scheduled buying operation, bonds improved further, and have now turned green across the board.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
96-17 : +0-03
FNMA 3.5
100-28 : +0-01
FNMA 4.0
104-11 : -0-01
FNMA 4.5
106-29 : -0-01
GNMA 3.0
97-20 : +0-02
GNMA 3.5
102-00 : +0-00
GNMA 4.0
105-08 : +0-00
GNMA 4.5
107-21 : -0-04
FHLMC 3.0
96-02 : +0-02
FHLMC 3.5
100-19 : +0-02
FHLMC 4.0
103-32 : -0-01
FHLMC 4.5
106-19 : -0-01
Pricing as of 11:05 AM EST
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.

10:06AM  :  Bonds Bounce Back as Philly Fed Flops
- Philly Fed at 6.5 vs 15.0 forecast!

Needless to say, the rest of the reports internals are weak as well, especially the Employment Index at 1.1 vs 15.4 previously.

At the very least, this has arrested the breakaway move into weaker territory that immediately preceded the data. Frustratingly though, the bounce back hasn't been as decisive as the data would seem to suggest.

10's are only back down to 2.813, but it's better than a sharp stick in the eye. Give it some time to play out.
9:59AM  :  ALERT ISSUED: Bond Markets at Weakest Levels Ahead of Philly Fed
Treasuries and MBS are both reciting their "to be or not to be" soliloquies, contemplating their will to live should the Philly Fed Index come in significantly stronger than expected. Really, it's about that simple.

Fannie 3.5s are down 9 ticks at 100-19 and 10's are up 4.6bps at 2.835. Philly Fed correlates pretty well with the national ISM numbers, plus we had stronger than expected Market PMI this morning. If Philly Fed corroborates, it will be seen as suggesting yet another ISM beat when we get back from Thanksgiving break.

Those with super early rate sheets may already be looking at negative reprice risk.
9:09AM  :  Bond Markets Weaker After First Round of Morning Data
The overnight session was surprisingly uneventful considering the pace of and tenor of Wednesday's domestic session. 10yr yields held a range of 2.775 to 2.805 into the first data of the morning. MBS opened just above yesterday's latest levels with Fannie 3.5s at 100-27

Stronger-than-expected Jobless Claims sparked the first move into weaker territory with MBS ticking down to 100-25 and 10yr yields up to 2.814. Most recently, a much stronger PMI reading from Markit (not nearly as potent as ISM's version, but a consideration when it beats/misses by a wide enough margin) pushed bonds into weaker territory still.

10's briefly hit 2.82 and Fannie 3.5s are holding at 100-25. Fannie 4.0s (which are increasingly relevant, if not dominant at current levels) are down 5 ticks at 104-07. The next significant data of the morning, and the biggest potential market-mover of the bunch, hits at 10am with the Philly Fed Index.
8:36AM  :  ECON: Jobless Claims Lower Than Expected
- Claims 323k vs 335k forecast, 344k previously
- Continued Claims 2.876mln vs 2.87 mln forecast
- Market Reaction: bond markets slightly weaker.

In the week ending November 16, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 21,000 from the previous week's revised figure of 344,000. The 4-week moving average was 338,500, a decrease of 6,750 from the previous week's revised average of 345,250.

The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending November 9, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 9 was 2,876,000, an increase of 66,000 from the preceding week's revised level of 2,810,000. The 4-week moving average was 2,856,750, an increase of 6,500 from the preceding week's revised average of 2,850,250.
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.

Steve Chizmadia  :  "Agreed Brian, That being said, I was as surprised yesterday when we did not sell off after retail sales as I am today that we are not rallying on the philly fed numbers"
Brian Bockholdt  :  "Surprisingly small reaction to Philly?"
Matthew Graham  :  "RTRS- U.S. SENATE BANKING COMMITTEE APPROVES YELLEN'S NOMINATION TO BE FED CHAIR, SENDS TO FULL SENATE FOR FINAL APPROVAL "
Matthew Graham  :  "RTRS- PHILADELPHIA FED EMPLOYMENT INDEX NOVEMBER 1.1 VS OCT 15.4 "
Matthew Graham  :  "RTRS- PHILADELPHIA FED NEW ORDERS INDEX NOVEMBER 11.8 VS OCT 27.5 "
Matthew Graham  :  "RTRS- PHILADELPHIA FED SIX-MONTH BUSINESS CONDITIONS NOVEMBER 45.8 VS OCT 60.8 "
Matthew Graham  :  "RTRS - PHILADELPHIA FED BUSINESS CONDITIONS NOVEMBER 6.5 (CONSENSUS 15.0) VS OCT 19.8 "
Brent Borcherding  :  "I don't believe the Fed thinks that either, AH."
Andrew Horowitz  :  "not that i agree that the economy can sustain any form of growth with mortgage rates in the 5% range"
Andrew Horowitz  :  "more muted because 3.00 is a more realistic "real" rate"
Andrew Horowitz  :  "MG2 we were at 1.61 for other reasons, when was the last tapebomb from Euroland"
Brent Borcherding  :  "AH, is the market reaction more muted because they don't believe they are exiting either?"
Michael Gillani  :  "The reaction seems much more muted only because we've already lost 140 bps in the 10 yr since this spring, entirely on tapering fears"
John Rodgers  :  "I'm pretty sure May was a precursor"
Andrew Horowitz  :  "the reaction this time is much more muted "
Michael Gillani  :  " I don't see it starting in Dec any more than it started in Aug. or Sept. We had the exact same market fear and reaction then."
John Rodgers  :  "80b in monthly QE disappearing from the market is not a joke to me. "

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