MBS MID-DAY: Strong, Positive Move for Bond Markets Following Ukraine Headlines

By: Matthew Graham

The trading day began mostly uneventfully, with bond markets working their way into positive territory by the domestic open.  Economic data didn't stand in the way of the gains.  The last major test for that came at 9:15am when Industrial Production came out slightly stronger than expected.  For a few moments, it looked like we might be seeing a turning point toward weaker levels, but MBS/Treasuries bounced before making any new lows (or 'highs' in the case of yields). 

Just over an hour later, any assessment of the morning movement would look silly and insignificant.  A batch of headlines out of Ukraine sent markets reeling.  Here's a recap (all headlines from Reuters unlise otherwise specified):

  • Ukrainian troops shelled from Russian territory, says Ukraine spokesman -BFW
  • Ukraine engaged Russian armored column on Ukrainian soil and "part of it no longer exists"
  • Ukraine President tells British PM that Ukraine destroyed part of Russian armored convoy that crossed border during the night
  • Russian spokesman says Ukrainian forces engaged in intense fighting to stop humanitarian aid. 
  • Related to above headline: Russia says it's getting info of direct threats to aid convoy. Ukraine forces may be planning to mine road to Luhansk -BFW 
  • Same spokesman says Russia is talking with Ukraine about humanitarian aid.
  • EU ministers would consider any military action by Russia as blatant violation of international law
  • Russia border crossing was "serious problem" for Ukraine -Reynders - BFW (note: 'Reynders' is some Belgian politician you've never heard of)

These were disconcerting enough and evenly spaced enough as to keep a steady rally intact for bond markets.  At their best levels, 10yr yields were as low as 2.303, and have only backed up to 2.315 since then.  MBS are 3/8ths of a point higher on the day with Fannie 3.5s up to 103-00.  Most lenders have repriced positively. 

While these things sometimes do bounce back, it's not an unsafe assumption that such a bounce would be limited in this case, by the potential for the situation to deteriorate over the weekend.


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
99-16 : +0-17
FNMA 3.5
103-00 : +0-12
FNMA 4.0
105-31 : +0-08
Treasuries
2 YR
0.3990 : -0.0130
10 YR
2.3130 : -0.0850
30 YR
3.1140 : -0.0860
Pricing as of 8/15/14 12:21PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:00PM  :  Strongest Move Since January Remains Intact After Ukraine Headlines
10:45AM  :  ALERT ISSUED: Whoa! What's up With the Spike in Bond Prices/Yields?!
9:54AM  :  Bond Markets Mostly Ignore Data and Continue Positive Overnight Trend

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Frank Hanna  :  "lows for the year?"
Ross Hickey  :  "WOW!"
Victor Burek  :  "UKRAINE FORCES ATTACK ARMED CONVOY FROM RUSSIA: LYSENKO •*UKRAINE TROOPS 'DESTROY' PART OF ARMED CONVOY: LYSENKO"
Jeff Anderson  :  "Ukraine/Russia"
Bryce Schetselaar  :  "wow. what just happened"
Matthew Graham  :  "Bout 10 minutes ago from Bloomberg: UKRAINE GOVT TROOPS SHELLED FROM RUSSIAN TERRITORY: LYSENKO "
Matthew Graham  :  "the most important part is the "holding the bag" cliche."
Sung Kim  :  "great day ahead MG - the chart looks like a video game"
Hugh W. Page  :  "The implications and dynamics of a Fed shift to no QE and rising rates in the current world economic and geo-political environment we have is enough to make my head explode. Something tells me volatiity is going to pick up quite substantially as we head into 2015."
Hugh W. Page  :  "Great stuff on the Day Ahead MG"
Matthew Graham  :  "perhaps it will strike back next month"
Oliver Orlicki  :  "big miss on empire"
Matthew Graham  :  "RTRS- NY FED'S EMPIRE STATE CURRENT BUSINESS CONDITIONS INDEX 14.69 IN AUGUST (CONSENSUS 20.00) VS 25.60 IN JULY"
Gus Floropoulos  :  "MG, feels like deja vu reading that article"
Gus Floropoulos  :  "The Day Ahead is spot on. "
Matthew Graham  :  "NP. To conclude, I'd say it's safe to think about it in terms of 'diminishing returns' for each degree of separation between an event and rate sheets. In the current case, geopolitics in Ukraine hits European markets hardest, then Treasuries, then MBS, then rate sheets. The day of the week is like the backdrop where Fridays tend to render the paint in more conservative colors. "