MBS MID-DAY: After Pausing for Consideration, Bond Markets Rally

By: Matthew Graham

Bond market resilience last Friday in the face challenging news suggested buyers might be planning an attack for the near future.  It would have been easy to lose faith in such an attack after the first four days of this week.  There was never a resounding defeat, but incessant, slow, steady, demoralizing weakness.  Even so, the initial reasons for the potential attack (FYI, this "attack" business is just a metaphor for bond market participants being sufficiently enticed to step in and buy the recent weakness) never went away.  I laid these out this morning before NFP.

NFP came in weaker than expected at the headline level, but beat expectations if revisions are included.  The initial stock market reaction was positive, but bonds rallied as well.  That may have been our first clue about the "attack" potentially being on.  But bigger players weren't convinced just yet.  Bond markets gave up all their gains and yields eventually crossed above 2.40 in 10yr Treasuries. 

At the same time, Cleveland Fed Pres Loretta Mester was on CNBC saying that the Fed isn't behind the curve on policy tightening--a bond-friendly statement because Mester is considered to be a "hawk" (not in favor of easy monetary policy).  When combined with the technical target of 2.40 on the screens, This was finally the signal that the bigger buyers were waiting for.  They jumped and turned the tide, at least for now.

Europe is a constant consideration, and also gets credit for helping this morning's rally (and for fueling some of the earlier pull-back as well).  The afternoon is somewhat uncertain with Europe now closed for the day and with US Bond markets hitting their best levels right at the end of European bond market trading.  The implied question: will their absence tip the scales back in favor of sellers this afternoon?  So far so good.

T


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
100-07 : +0-18
FNMA 3.5
103-17 : +0-13
FNMA 4.0
106-11 : +0-09
Treasuries
2 YR
0.5030 : -0.0470
10 YR
2.3150 : -0.0670
30 YR
3.0540 : -0.0470
Pricing as of 11/7/14 12:41PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:57AM  :  Rally Finally Showed Up; Positive Reprice Potential
8:47AM  :  First Move is Stronger Following NFP, Second Move is a Scary Bounce

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "yes MG2. Lenders will just be waiting for it to level-off and hold. "
Michael Gillani  :  "Shouldn't we be in positive reprice territory?"
Matthew Graham  :  "There is no satisfying cause and effect headline right now. If you want to know why we're going higher, read the Day Ahead."
Matthew Graham  :  "I wouldn't give any thought to the Russia news. "
Victor Burek  :  "that news in hours old and nobody believes it"
Chris Hooker  :  "This abrupt improvement due to Russia news?"
Matthew Graham  :  "RTRS- YELLEN SAYS GOVERNMENTS NEED TO SIGNIFICANTLY IMPROVE FISCAL BALANCES IN GOOD TIMES TO PREPARE FOR STIMULUS IN BAD TIMES"
Matthew Graham  :  "RTRS- FED CHAIR YELLEN SAYS LACK OF FISCAL SUPPORT HAS WEAKENED U.S. AND GLOBAL ECONOMIC RECOVERY"
Matthew Graham  :  "RTRS - EVANS: BIGGEST RISK TODAY IS PREMATURELY TIGHTENING MONETARY POLICY"
Matthew Graham  :  "RTRS- EVANS: WAGE COSTS ARE NOT DRIVING INCREASED INFLATION EXPECTATIONS"
Matthew Graham  :  "RTRS- EVANS: LABOR MARKET SLACK IS DEFINITELY DIMINISHING"
Matthew Graham  :  "Nice point/counterpoint here from Chi-Fed's Evans"
Matthew Graham  :  "RTRS- US OCT PRIVATE SECTOR JOBS +209,000 (CONS +222,000), VS SEPT +244,000 (PREV +236,000)"
Matthew Graham  :  "RTRS- U.S. OCT LABOR FORCE PARTICIPATION RATE 62.8 PCT VS SEPT 62.7 PCT (PREV 62.7 PCT)"
Matthew Graham  :  "RTRS- U.S. OCT JOBLESS RATE 5.8 PCT, LOWEST SINCE JULY 2008 (CONSENSUS 5.9 PCT) VS SEPT 5.9 PCT (PREV 5.9 PCT)"
Matthew Graham  :  "RTRS- U.S. OCT NONFARM PAYROLLS +214,000 (CONSENSUS +231,000) VS SEPT +256,000 (PREV +248,000), AUG +203,000 (PREV +180,000)"