MBS RECAP: Market Monotony Broken By Geopolitical Events; Big Rally For Bonds

By: Matthew Graham •

Today offered a triple or possibly quadruple-whammy for bond markets, almost exclusively in the form of overseas events.  The weakest among these was the notion that yesterday's announcement of new sanctions against Russia was a profound market mover.  While that's technically possible, it wasn't plainly evident in overnight trading.

By the start of the domestic session, bond markets were only in slightly stronger territory.  The next boost was the only domestic consideration today.  June Housing Starts came in much weaker than expected and broke below a trend of growth that had been intact since the beginning of 2011.  Bond markets improved on the data, despite a stronger-than-expected Jobless Claims report. 

Trading proceeded in relatively uneventful fashion until the day's first geopolitical catastrophe unfolded when news hit of a Malaysian airliner being shot down on the Russia/Ukraine border.  this set the tone for the rest of the day as bond markets rallied steadily and stocks moved lower. 

This brought 10yr yields right to the important 2.47% level before the last major geopolitical headline came out.  Just after 3pm, Al-Jazeera reported that Israel launched a major ground/air/sea assault on Gaza.  Market reaction was sporadic, peaking in intensity at 3:15pm, but never really doing anything but carry yields and stocks lower.  Israel confirmed the news at 3:40pm.

As is always the case when it comes to global flights to safe-haven assets, Treasuries outperformed MBS handily.  Even so, MBS weren't completely tuned out from the rally, managing to gain 3/8ths of a point by the end of the day.  This brings Fannie 3.5s to 102-15.

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
98-22 : +0-15
FNMA 3.5
102-15 : +0-12
FNMA 4.0
105-19 : +0-08
Treasuries
2 YR
0.4476 : -0.0444
10 YR
2.4494 : -0.0886
30 YR
3.2677 : -0.0803
Pricing as of 7/17/14 5:04PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:09PM  :  Israel Ground Offensive in Gaza Sends Bond Yields Lower Still
2:17PM  :  Ongoing Positive Reprice Potential as Treasuries/MBS Hold Gains
10:08AM  :  Strong Philly Fed Data Reinforces Bounce Toward Weaker Levels
9:37AM  :  Bond Markets Stronger Overnight, and Another Boost From Weak Housing Data
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "yeah, it's still pretty sudden. And just because MBS are better positioned to soak up weakness doesn't mean a run to 2.66 in Treasuries wouldn't hurt"
Hugh W. Page  :  "Still don't trust this rally just yet. Need some follow through IMO. I think for short timers it's a lock opportunity."
Roland Wilcox  :  "MG so timely just shared analogy w/client who inquired about 10yr/MBS relationship"
Sung Kim  :  "thank you MG, that really helped"
Matthew Graham  :  "conversely, if broader markets lose ground, MBS will have already been lagging behind, and thus potentially not lose ground at the same pace."
Matthew Graham  :  "That's what I meant by "slingshot" if broader markets improve."
Matthew Graham  :  "when MBS are underperforming, they're like the dog pulling back reluctantly on the leash. Right now it's pretty stretched. If the master continues to walk forward, it could make for a relatively rapid move forward by the dog."
Matthew Graham  :  "In this analogy, the "leash" is stretchy "
Matthew Graham  :  "Let's begin by recalling an analogy we sometimes use of the 'Master and the Dog.' The overall momentum in bond markets is like the Master. The best benchmark we have for that is 10yr yields, which is why we talk about them so much. MBS are like the dog (and no, there's no deeper meaning here). The master sets the course for where the two will walk but the dog can tug at the leash--either reluctantly or eagerly. "
Sung Kim  :  "MG, would you mind expounding on that comment?"
Hugh W. Page  :  "That insight is invaluable info"
Matthew Graham  :  "The fact that Treasuries are here with MBS having underperformed so consistently for the past 1.5 weeks may set us up for a bit of a slingshot if broader market stays strong, or to better endure weakness if broader markets bounce."
Andy Pada, Jr.  :  "the real time chart is such an amazing tool"
Andy Pada, Jr.  :  "as horrible the circumstances may be, I was able to lock in a bunch on live pricing at noon. "