MBS MID-DAY: Bond Markets Fighting to Hold Weakest Levels

By: Matthew Graham •

MBS and Treasuries are essentially at their weakest levels of the past two days, fighting to hold that ground against a rebounding stock market and weak European bond market.  Both have taken their toll so far this morning.

Thankfully there was pronounced strength before the weakness set in, leaving us very close to unchanged territory.  10's were as low as 1.98 just after 6am.  Fannie 3.5 MBS opened much stronger at 104-06 and are now perfectly 'unchanged' at 103-26.

The relatively epic scale of movement continues to be a story of tradeflows and technicals.  In other words, the large-scale herd mentality has been much more relevant to market movement than, say, economic data or other fundamentals.  Case in point, the selling was in progress well before any of this morning's economic data and there was no discernible reaction to a very strong reading on Jobless Claims at 8:30.

As for the technical landscape, both Treasuries and stocks have set up a few inflection points overhead.  The longer they remain under these lines, the better.  Breaking above one isn't necessarily the end of the world, but it would suggest a more defensive stance today in exchange for future optimism.

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
100-25 : -0-04
FNMA 3.5
103-25 : -0-01
FNMA 4.0
106-08 : -0-01
Treasuries
2 YR
0.3390 : +0.0310
10 YR
2.1550 : +0.0260
30 YR
2.9380 : +0.0290
Pricing as of 10/16/14 12:14PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:40AM  :  ALERT ISSUED: Negative Reprice Risk Increases; MBS at New Lows
9:58AM  :  ALERT ISSUED: Negative Reprices Already a Consideration for Some Lenders
9:46AM  :  Bond Markets in Positive Territory, but Well Off Best Levels
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "Many traders don't even care about the yield. It's just a label. In that sense, Treasuries (or German Bunds) are just like stocks where traders buy them hoping to see the prices rise. (I know Sung just said this, but I wanted to flesh out my answer in simpler terms)"
Sung Kim  :  "price appreication"
Matthew Graham  :  "think about that... The return on bonds has nothing to do with their yields (unless you buy and hold a 10yr bond for 10 years)"
Matthew Graham  :  "Bloomberg article yesterday (I think I put it in the news stream) talked about "bonds return more than stocks in 2014""
Matthew Graham  :  "bottom line is that the bet is on the CHANGE over a certain time period that is much shorter than the actual duration of the bond"
Matt Hodges  :  "mg - not to put your on the spot, but would you explain why a 2% yield makes sense to a buyer, or a negative yield on German 2 yr bund makes sense... liquidity of the marketplace, ability to move up and down the curve... in layman's terms?"
Matthew Graham  :  "RTRS- US JOBLESS CLAIMS FELL TO 264,000 OCT 11 WEEK, LOWEST SINCE APRIL 2000 (CONSENSUS 290,000) FROM 287,000 PRIOR WEEK (PREVIOUS 287,000)"
Jeff Anderson  :  "GM, all. My Dramamine is in my work bag, just in case. Like all the doomsayers of the last few decades being right at some point, Sung. Rates will go up at some point and they'll be right. But until then...."
Sung Kim  :  "Loving how all the investment bank analysts are still in denial about rates. Their advice has crushed their clients yet they still are sticking to their theme of higher rates sooner rather than later"
John Tassios  :  "looks like another volatile day shaping up"