MBS RECAP: FOMC Minutes Didn't Save Bond Markets from AM Weakness

By: Matthew Graham •

For all the potentially complicated conclusions that can follow something as wordy and important as FOMC Minutes, today ended up being fairly cut and dry.  In fact, it can be covered in a list.

1. Bond markets were weaker overnight, purely due to European economic data.  The biggest culprit was German ZEW sentiment (not important to know what that is, just that it's one of Germany's most important pieces of economic data).

2. Bond markets did very little in the morning hours, ostensibly holding support ahead of the FOMC Minutes.

3. Minutes themselves were on the friendly side as the Fed expressed significant concern about inflation and also admittedly held off on including some of their thoughts in the actual statement for fear of the potential market reaction.  Some say they did this so that markets wouldn't expect more QE, but the fact remains that a totally healthy economy and marketplace wouldn't require the Fed to pull punches.

4. Bonds rallied on the Fed minutes and then sold off following a big corporate bond announcement from Alibaba (USD denominated).  Trading levels ended up right back where they were before FOMC.

Tomorrow is a new day, but I'm personally feeling a bit defensive after seeing the size of the reaction in European bond markets this morning, combined with my general belief that European markets are currently as important an indicator as anything for rates at home.

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
99-29 : -0-09
FNMA 3.5
103-11 : -0-07
FNMA 4.0
106-06 : -0-04
Treasuries
2 YR
0.5250 : +0.0210
10 YR
2.3580 : +0.0410
30 YR
3.0770 : +0.0370
Pricing as of 11/19/14 5:17PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:49PM  :  ALERT ISSUED: Gains Evaporate After Alibaba Bond Announcement; Negative Reprice Risk.
2:30PM  :  Strong Post-FOMC Gains Pulling Back Somewhat
2:03PM  :  Bond Markets Still Standing After FOMC Minutes
8:58AM  :  Weaker Morning Thanks Mostly to Europe; Housing Starts no Help
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "OK Tim, I wrote an article for you: How Does Corporate Debt Issuance Affect Mortgage Rates? "
tim yazawa  :  "why does corporate bond issuance have a negative impact on treauries and mbs? Is there an article that explains why?"
Matthew Graham  :  "remember all the recent talk about big corporate bond offerings taking a toll on Treasuries? This is taking a toll right now."
Matthew Graham  :  "RTRS ALIBABA GROUP HOLDING LTD ANNOUNCES MULTI-TRANCHE DEBUT US DOLLAR BENCHMARK BOND -SOURCES"
Sung Kim  :  "looks like the market is telling us how bullish or hawkish the minutes were"
Matthew Graham  :  "VB, I think the fact that the Fed is concerned about how TRUTH could be perceived if included in the statement is bullish. (if that makes sense)"
Victor Burek  :  "your take mg? dovish, hawkish, neutral?"
Matthew Graham  :  "RTRS - A NUMBER OF PARTICIPANTS THOUGHT IT COULD "SOON BE HELPFUL" TO CLARIFY APPROACH TO PACE OF INTEREST RATES HIKES"
Matthew Graham  :  "RTRS- FOMC PARTICIPANTS DISCUSSED DROP IN MARKET-BASED INFLATION EXPECTATIONS, MANY SAID FED SHOULD REMAIN ALERT TO A POSSIBLE DOWNWARD SHIFT IN LONG-TERM EXPECTATIONS"
Matthew Graham  :  "RTRS- FOMC PARTICIPANTS EXPECTED SOFT INFLATION IN NEAR-TERM, THEN RISING TOWARD TARGET; A FEW WORRIED INFLATION COULD BE BELOW TARGET FOR "QUITE SOME TIME""
Matthew Graham  :  "RTRS- FOMC DISCUSSED ADVANTAGES, DISADVANTAGES OF REFERENCING RECENT FINANCIAL MARKET DEVELOPMENTS; PARTICIPANTS SAW RISK REFERENCE MIGHT SIGNAL GREATER PESSIMISM THAN APPROPRIATE"
Matthew Graham  :  "RTRS - FOMC IN OCTOBER DISCUSSED "SOMEWHAT WEAKER" OUTLOOK IN EUROPE, CHINA, JAPAN, AND STRONGER DOLLAR; MANY SAW IMPACT ON U.S. AS "QUITE LIMITED" - MINUTES"