MBS RECAP: Negative Momentum Trumps Post-NFP Rally

By: Matthew Graham

Some movies are interesting and dramatic in a way that real life tends not to be.  This even applies to many TV series where the protagonist "solves" the case, explaining the seemingly inexplicable plot twists that had occurred along the way. 

This often happens in financial markets too.  April 4th comes to mind, when NFP was slightly stronger (by the time revisions were factored in) yet bond markets rallied impressively.  The "a ha" moment came when we learned that markets were really moving on European QE news.  That was a satisfying explanation of plot twists.

Other times, things just happen because they're already happening.  Today might be one of those days.  There are more than a few ways to explain away today's bad jobs numbers or to otherwise attempt to justify a bond market that returns  to unchanged levels after a big morning rally, but I personally haven't found any of them to be the least bit satisfying.

The only thing we can be sure of is that there has been pervasive weakness in place all week.  We know that there can be a shift in momentum at the start of a new month, so chalking some of the paradoxical momentum up to a lopsided balance in trading positions isn't a terrible idea.  We can also consider that the week's watershed event was arguably yesterday's ECB meeting. 

From there, it's not unreasonable to suggest that bond markets had priced-in plenty of positivity heading into ECB and were met with an announcement that was a bit anticlimactic.  Combine that with European yields hitting all-time lows last week, and maybe we'd already priced-in as much as we were willing to price in.

Whatever we do to justify today in terms of visible events, we clearly were dealing with a market that was biased toward weakness.  In fact, there were really only 3 minutes of concerted positivity all day, immediately following the jobs report.  Everything after that was either outright weakness or a temporary consolidation after running to weaker levels.  Bottom line: it looks like this is where bond markets were going today, regardless of the data.  That'll be scarier if it continues next week.


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
98-31 : -0-01
FNMA 3.5
102-21 : +0-01
FNMA 4.0
105-27 : +0-01
Treasuries
2 YR
0.5080 : -0.0280
10 YR
2.4590 : +0.0110
30 YR
3.2270 : +0.0220
Pricing as of 9/5/14 5:05PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:29PM  :  ALERT ISSUED: Leakage Continues; Negative Reprices Becoming More Likely
12:46PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
8:42AM  :  NFP Much Weaker Than Expected; Big Rally for Bond Markets

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jason Anker  :  "the one bill I'm happy to pay every month"
Sung Kim  :  "thank you all for the help... cant believe this site is only 38.95/mo"
Jason Anker  :  "I've had A/E's that failed residuals. DU never adds the 20% to the residual comments on findings."
dustin mcalister  :  "only if the dti is over 41% will you be required to be 120% on residual..i don't even think du and lp will approve it without being 120%, i know LP doesnt"
Sung Kim  :  "wait, if DTI is 41% then i need to gross up residual requirements by 20%?"
Jason York  :  "http://mndne.ws/1mSBh99 Chapter 4, page 54"
Sung Kim  :  "whats the link for VA residual?"
Bryce Schetselaar  :  "I agree with Chip. If it were less of a miss, we probably would have done better"
Matthew Graham  :  "take a step back from the 2-day chart view. I think "the trend" from the end of August is taking the wind out of the sails. Then if you want to feel better, you can go back even farther and look at the trend from the past 3 months."
Victor Burek  :  "stocks are green now...taking some wind away from us"
Chip Harris  :  "I think everyone sees this as an anomaly. I bet it gets revised 40k + higher next month"
Jason Anker  :  "very"
Oliver Orlicki  :  "thought with the 142K print we would be sub 2.4"
Oliver Orlicki  :  "very discouraging today"