MBS MID-DAY: Bond Markets Pushed Weaker by Slippery Slope of Illiquidity

By: Matthew Graham

Despite an abundance of seemingly relevant economic data, volumes are merely on pace with yesterday, which was the slowest session in more than 3 months.  With GDP coming in much stronger than expected, it may well seem like the data is motivating the price movements.  Unfortunately, when participation is as light as it is today, we have no way of conclusively knowing if this is simply where bond markets would have ended up anyway. 

The best evidence for that is the utter lack of a meaningful reaction to the GDP data in it's immediate wake.  When economic data has a big impact on bond market trading, we'd normally see a big pop in movement and volume that gradually declines.  Instead, we saw a modest pop and immediate return to sideways trading and holiday-light volumes. 

It wasn't until 9:06am that activity began to increase.  This isn't some sort of magical delayed reaction to GDP.  It's "something else."  Whether that happens to be incidental year-end housekeeping among bond traders, or a concessionary preparation for the afternoon's 5yr auction (which is expected to be challenging for bidders), we can't know.  All we can be sure of is that markets aren't reacting to data.  Yields have yet to challenge last week's 2.23 support, so after yesterday's 2.15 bounce, today's weakness is still rangebound in the bigger picture.  In terms of MBS, we bounced at 100-26 in Fannie 3.0s compared to last week's 100-24 supportive bounce--also rangebound.


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
100-28 : -0-10
FNMA 3.5
103-32 : -0-07
FNMA 4.0
106-16 : -0-03
Treasuries
2 YR
0.7350 : +0.0720
10 YR
2.2110 : +0.0540
30 YR
2.7940 : +0.0530
Pricing as of 12/23/14 12:59PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:15AM  :  ALERT ISSUED: Negative Reprice Risk Increasing as Technical Support Breaks
9:23AM  :  Bond Markets Minimally phased Phased by GDP; Separate Negative Momentum Follows

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jason Anker  :  "Catalyst for housing demand, wage growth or rent inflation."
Jason Anker  :  "to yesterdays point: . Zillow predicts that growth in rents will outpace home values in 2015 due to skyrocketing rental demand"
Matthew Graham  :  "RTRS- US NOV PERSONAL INCOME +0.4 PCT (CONS +0.5 PCT) VS OCT +0.3 PCT (PREV +0.2 PCT)"
Matthew Graham  :  "RTRS - US NOV PERSONAL SPENDING +0.6 PCT (CONSENSUS +0.5 PCT) VS OCT +0.3 PCT (PREV +0.2 PCT)"
Matthew Graham  :  "RTRS- US NOV SINGLE-FAMILY HOME SALES 438,000 UNIT ANN. RATE (CONS. 460,000) VS OCT 445,000 UNIT RATE (PREV 458,000)"
Matthew Graham  :  "THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT FINAL DECEMBER 93.6 (CONSENSUS 93.5) VS PRELIMINARY DEC 93.8 AND FINAL NOV 88.8"
Sung Kim  :  "guidelines changed about 2 months ago?"
Victor Burek  :  "the lesser years depending on dp no longer applies"
Josh Olson  :  "really? is it still 4 years at 90% LTV?"
Matt Hodges  :  "June 17: The waiting period requirements for borrowers who have had a previous deed-in-lieu of foreclosure or preforeclosure sale are being updated to now require a four-year waiting period; though a two-year waiting period will be permitted if the event was due to extenuating circumstances"
Scott Valins  :  "Is it a real number if nobody's here to see it?"
Matthew Graham  :  "RTRS - US NOV DURABLES ORDERS -0.7 PCT (CONSENSUS +2.9 PCT) VS OCT +0.3 PCT (PREV +0.3 PCT)"
Matthew Graham  :  "RTRS - US FINAL Q3 GDP +5.0 PCT, BIGGEST INCREASE SINCE Q3 2003 (CONSENSUS +4.3 PCT), PREV +3.9 PCT; FINAL SALES +5.0 PCT (CONS +4.2 PCT), PREV +4.1 PCT"