MBS Day Ahead: Maybe GDP and Yellen can Move Markets

GDP reports come in three flavors: advance, preliminary, and final.  Today is the 'advance' reading for the 3rd quarter and hence the first look at Q3 GDP despite Q3 having been over for a full month.  Because of its stale nature, the market impact of GDP is often questioned, but the advance has the most potential of the three.

In addition to GDP there is other economic data, a Yellen speech, and the week's last Treasury auction.  Maybe somewhere in the mix of these events, markets will find some justification for actual movement, because yesterday's FOMC Announcement didn't really cut it.

Granted, we'd discussed the fact that the Announcement itself would be less interesting than the longer-term market reaction that can now begin, but even then, the lack of response yesterday was very telling.  Here are a couple charts that show how invisible it was.  In both charts, the FOMC day couldn't be picked out of a lineup with any old non-FOMC day.  That's uncommon!  The takeaway is that reaction will either be far more gradual than normal or that other factors outweigh
it.

The first is 'plain old 10yr yields' with 10yr futures volumes at the bottom.

This next chart is just the spread between MBS yields and 10yr yields.  The higher the line, the worse MBS are performing relative to Treasuries.  While rate sheet pricing doesn't follow MBS perfectly, the general extrapolation is also that as the line moves down, the closer mortgage rates are staying to Treasuries.