MBS MID-DAY: Modest Gains and an Unofficial Early Close

By: Matthew Graham

It might not actually be on the calendar, but in almost every way that matters, the trading day is over for bond markets.  The 11:30am 7yr Treasury auction was the last thing anyone arguably needed to wait around for.  This is a bit hyperbolic, of course.  It's not as if no trades will be happening for the rest of the day--just that the trading environment will be increasingly illiquid from here on out.

As a bit of a side note, "illiquidity" means a lack of volume at a certain price.  In other words, if 50 pairs of buyers and sellers were trading the same MBS at 50 different prices, the volume could be quite high, but the liquidity would be quite low.  If those same 50 pairs were instead trading at 3-4 different prices, liquidity would be high.  Buyers and sellers would have an easy time meeting their needs, and volatility would be lower. 

The conclusion is that a lack of liquidity this afternoon can force buyers and sellers to reach farther to get their needs met, thus increasing volatility.  It also means that prices can slide farther in one direction or another if there's an imbalance between buyers and sellers because in an illiquid environment, if your counterparty isn't meeting your price, you may not have many other options. 

We embark on this illiquid afternoon adventure from trading levels that are pretty darn good.  In fact, they're the best in over a month, although we've pulled back just a tad from earlier morning gains.  The positivity was fueled--at least in part--to weaker economic data.  The 8:30am round of data had the biggest impact in that regard, with Jobless Claims and the important internal components of the Durable Goods data both coming in significantly weaker. 

There haven't been any overt market reactions to headlines since then.  Gains have been holding, but the trend has been sideways to slightly weaker since 10am.


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
100-27 : +0-04
FNMA 3.5
104-01 : +0-02
FNMA 4.0
106-21 : +0-01
Treasuries
2 YR
0.5160 : -0.0080
10 YR
2.2390 : -0.0200
30 YR
2.9450 : -0.0190
Pricing as of 11/26/14 12:08PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:21AM  :  Bond Markets Holding Moderate gains After 1st Round of Data

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jason Anker  :  "I doubt I'll lock today but as always I reserve my right to change my mind at any time. "
Matthew Graham  :  "RTRS - US OCT MEDIAN SALE PRICE RECORD HIGH $305,000, +15.4 PCT FROM OCT 2013 ($264,300)"
Matthew Graham  :  "RTRS- US OCT SINGLE-FAMILY HOME SALES 458,000 UNIT ANN. RATE, HIGHEST SINCE MAY 2014 (CONS. 472,000), VS SEPT 455,000 UNIT RATE (PREV 467,000)"
Matthew Graham  :  "RTRS- U.S. OCT PENDING HOME SALES INDEX -1.1 PCT (CONSENSUS +0.5 PCT) TO 104.1 - NAR"
Hugh W. Page  :  "I think it might be a good day to lock . . ,"
Jason Anker  :  "i dont expect a real rate sheet till monday but I am excited for Monday"
Matthew Graham  :  "If there are, they're hiding. Or maybe waiting for 10am data and maybe the auction before quickly wrapping things up for November."
Victor Burek  :  "are any traders around to care?"
Matthew Graham  :  "RTRS- CHICAGO PURCHASING MANAGEMENT INDEX 60.8 IN NOVEMBER (CONSENSUS 63.0) VS 66.2 IN OCTOBER"
Matthew Graham  :  "RTRS - US OCT PERSONAL INCOME +0.2 PCT (CONS +0.4 PCT) VS SEPT +0.2 PCT (PREV +0.2 PCT)"
Matthew Graham  :  "RTRS - US OCT PERSONAL SPENDING +0.2 PCT (CONSENSUS +0.3 PCT) VS SEPT UNCHANGED (PREV -0.2 PCT)"
Matthew Graham  :  "RTRS- U.S. OCT DURABLES EX-TRANSPORTATION ORDERS -0.9 PCT, BIGGEST DECLINE SINCE DEC 2013 (CONS +0.5 PCT) VS SEPT +0.2 PCT (PREV -0.1 PCT)"
Matthew Graham  :  "RTRS- US OCT DURABLES ORDERS +0.4 PCT (CONSENSUS -0.6 PCT) VS SEPT -0.9 PCT (PREV -1.1 PCT)"
Matthew Graham  :  "RTRS- US JOBLESS CLAIMS ROSE TO 313,000 NOV 22 WEEK (CONSENSUS 288,000) FROM 292,000 PRIOR WEEK (PREVIOUS 291,000)"