MBS RECAP: 2 Reasons for Today's Gains and Europe is Both of Them

Admittedly there are far more than 2 reasons for anything in financial markets to do anything.  But when it comes to "the why" behind the ability of Treasuries and MBS to continue adding to improvements despite last week's NFP (data that would historically set a negative trend for the entire month), look no further than Europe.

I posted this chart earlier today as well, but considering the lion's share of the market movement came during the European session, it's just as relevant.  This particular chart has the DAX stock index, but European bond yields traded a similar shape.  In fact, German 10yr yields (benchmark for Eurozone) hit a new record low today.

Once Europe was done for the day, US markets were more free to go about their business.  Stocks certainly did and bonds did to a smaller extent.  In other words, things were slightly weaker in the afternoon, but never so weak as to jeopardize the gains.  That was more true for Treasuries than MBS as the latter were deprived of their daily scheduled buying from the Fed.  Rate sheets ended up coming very close to recent lows.

NOTE: tonight is "the roll" for Fannie and Freddie 30yr Fixed MBS. This means that December coupons will no longer be trading, and "MBS Prices" will now be based on January coupon prices, which are about 10 ticks lower. In other words, it will look like prices dropped, but it's just a change of view. No rate sheet impact.