MBS RECAP: Bond Markets Use Up Every Last Bit of Correction Potential

By: Matthew Graham •

GDP came out much weaker than expected this morning and Jobless Claims were noticeably stronger than expected.  Pending Home Sales were stagnant and depressing, and the 7yr Treasury auction was pretty darn good considering how aggressively bond markets rallied leading up to it.

But none of that stuff mattered...

We wouldn't even need to know any of today's goings on based on how bond markets traded.  Quite simply, after yesterday's break of 2.47--a hugely important technical level--anything below 2.47 is fair play for today.  So when 10yr yields hit 2.402 this morning, a 7bp sell-off was a very reasonable afternoon result, as we discussed in several alerts on the way up today.  Here's an example:

"One of the downsides of moving lower in rate as quickly as we have is that there's plenty of room to move higher ahead of next week's important events, WITHOUT necessarily approaching those events from a level that's "too high." In other words, 2 days ago, it seemed perfectly reasonable to approach next week's ECB announcement and NFP release from around 2.47% in 10yr yields, and yields were as low as 2.40 this morning."

Long story short, bond markets had room to sell-off without changing anything about the big picture, and they took it.  By stopping short of breaking back through 2.47, Treasury technicals make no comment on the prospects for tomorrow.  They merely consolidated the preexisting rally and can approach the upcoming days from a more neutral stance.  A break above 2.47 could change that.  10's ended the day at 2.4697.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
98-28 : -0-12
FNMA 3.5
102-30 : -0-11
FNMA 4.0
105-26 : -0-08
Treasuries
2 YR
0.3789 : +0.0119
10 YR
2.4697 : +0.0317
30 YR
3.3286 : +0.0406
Pricing as of 5/29/14 5:35PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:11PM  :  ALERT ISSUED: New Reprice Risk Now as MBS Push Further into Lows
3:40PM  :  ALERT ISSUED: MBS Drift Back to Lows; Reprice Risk Remains
2:54PM  :  Worst Selling is Over, though Reprice Risk Lingers for Some
1:54PM  :  ALERT ISSUED: Have we Mentioned Reprice Risk Yet? Because Yeah... It's Here.
1:36PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
1:23PM  :  ALERT ISSUED: Volatility after 7yr Treasury Auction; Edging Toward Negative Reprice Risk
12:20PM  :  MBS Off Highs, but Still Close to Rate Sheet Print Time Levels
10:57AM  :  MBS and Treasury Rally Continues; Best Levels of 2014
9:07AM  :  Bond Markets Reasonably Flat Following GDP, Claims
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Steve Chizmadia  :  "Thanks MBS Live. Your most recent alert helped me beat a reprice worse by about 5 minutes. "
Chris Hooker  :  "What's with the sudden plummet? Profit taking? Our company just shut down our lock desk"
Matthew Graham  :  "Hey Chip, My only worthwhile thought with the bounce is the stuff about there being "room" to move higher in rate while still remaining in low territory overall. The part in the last 2 alerts about 2.47% 10yr yields is kinda the thesis there. Beyond that, it's just sort-of the nature of the beast that big rallies set us up for sharper corrections, especially when they run past well-established technical levels and the correction isn't yet back to those technical levels (i.e. 10's at 2.4573 vs 2.4700 inflection point)."
Chris Hooker  :  "Thanks MG....seeing our lockdesk completely shut down was concerning, reminds me of this time last year...."
Matthew Graham  :  "thankfully, I don't foresee rates moving 1% higher by early July this year."
Jeff Anderson  :  "Can't relive that? That was a good time last year."
Joseph Moran  :  "lock or float it out?"
Matthew Graham  :  "just depends on the time frame of your outlook. Bigger picture, not much reason to freak out moving up to 2.45. All we can really advise on is intraday risk, which is high. Longer term, no way to know, but the trend is certainly still technically your friend. The catch is that your clients could lose a lot of money by the time we can see the trend is no longer your friend."