MBS RECAP: Bonds Kick Rally up a Notch After Auction

By: Matthew Graham •

The day began in fine shape, especially in light of the stronger reading on GDP.  European bond market strength remains at the heart of our ability to hold ground that otherwise seems out of reach.  German Bunds, Europe's 10yr benchmark, pushed down to .77% on Friday and looked like they might bounce yesterday.  But today saw another rally down to .75% this time.  This was significant because it happened in spite of Germany's GDP holding in positive territory today--something market participants reckoned would be negative for bonds overnight.

We had a GDP reading this morning as well.  Not only was it much stronger than expected, but there weren't any major caveats to the strength.  Internal components were broadly stronger and "inventory-building" didn't prop up the number (in fact, it detracted a bit!).  So it came as a bit of a surprise (or "hint" perhaps?) when bonds never really sold off in the morning.  There was some weakness at first, but Treasuries and MBS never went too far back into yesterday's territory before vaulting to stronger levels.

The most noticeable vaulting followed the 5yr Treasury auction, which was exceptionally strong.  This kicked off a weird, condensed, holiday-inspired version of a snowball rally that saw massive Treasury futures and options trading.  MBS Live subscribers got a more detailed account of the afternoon tradeflows, but suffice it to say we say a good example of what can happen when buying motivation increases abruptly on a holiday-shortened weak that falls on the end of the month. 

When all was said and done, 10yr yields stood just under 2.26 and Fannie 3.5s are a tick away from 104-00! 

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
100-23 : +0-11
FNMA 3.5
103-31 : +0-07
FNMA 4.0
106-20 : +0-02
Treasuries
2 YR
0.5240 : +0.0270
10 YR
2.2590 : -0.0460
30 YR
2.9640 : -0.0535
Pricing as of 11/25/14 5:15PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:03PM  :  Huge Block Trading Activity in Treasuries Propels the Rally
1:22PM  :  Foreign Investors Just Can't Get Enough US Debt; Strong Auction Boosts Bonds
9:33AM  :  Bond Markets Shrug Off Big Beat in GDP
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  ""It's only a matter of time spent holding these gains before a few lenders would feel justified in offering a positive reprice.""
William McGuirt  :  "i think we are close to a reprice, no? "
Matthew Graham  :  "Indirect bid % is considered a rough proxy for foreign demand. It's not that 65% of the bid was foreign. We can't know that actually, but relative to the average indirect bid (closer to 50%), this tells us that there was very likely a big increase in foreign demand."
Victor Burek  :  "Santelli said strong A"
Matthew Graham  :  "RTRS - PRIMARY DEALERS TAKE 25.08 PCT OF U.S. 5-YEAR NOTES SALE, DIRECT 9.87 PCT AND INDIRECT 65.05 PCT"
Matthew Graham  :  "oh yeah, and indirects were huge"
Matthew Graham  :  "A"
Matthew Graham  :  "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.91, NON-COMP BIDS $53.64 MLN"
Matthew Graham  :  "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 1.595 PCT, AWARDS 11.77 PCT OF BIDS AT HIGH"
Matthew Graham  :  "5yr Auction coming up. Recent average bid-to-cover is 2.64, but the last one was 2.36. The last 3 auctions have come in at higher-than-expected yields (also 6 of the last 7). Current yield expectation is 1.614"