MBS MID-DAY: Snowball Rally Now Pulling Back; Important Levels to Watch

By: Matthew Graham

Overnight Treasury trading was positive, largely due to spillover from a much more forceful move in European bond markets.  Multiple asset classes are taking part in a global flight-to-safety.  That means things like stocks and oil are falling in price and things like bonds are rising in price.

By the time MBS began trading for the day, bond markets were already in significantly stronger territory.  Fannie 3.0s began over 3/8ths of a point higher and 10yr yields were already down under 2.0%.  As European trading wound down, another wave of buying hit US Treasuries.  That came not only from investors selling stocks and moving into bonds, but also from technical momentum.  In other words, as new low yields are hit, additional waves of buying are automatically prompted.  In turn, those bring yields even lower, prompting the next wave of buying. 

That snowball ran it's course by 12:10pm--just after the European bond market close.  bonds have bounced back slightly from there, but remain at the best levels since May 2013 on a closing basis.  ISM data at 10am was largely ignored.  Markets are focused on the broader concept of the global flight to safety surrounding Europe.

At this point we're watching 1.945 in 10yr yields.  A break above that would suggest a bigger correction into the afternoon.  In terms of MBS, 102-18 in Fannie 3.0s would be a roughly equivalent line in the sand.


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
102-20 : +0-18
FNMA 3.5
105-09 : +0-12
FNMA 4.0
107-09 : +0-07
Treasuries
2 YR
0.6090 : -0.0560
10 YR
1.9370 : -0.0970
30 YR
2.5160 : -0.0870
Pricing as of 1/6/15 1:32PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:06PM  :  Well-Behaved Snowball Rally Into European Close
9:51AM  :  European Bond Markets Back With a Vengeance

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Hugh W. Page  :  "Don't forget sharp reversals are not uncommon in a market moving like this."
Jason York  :  "this movement is pretty fast, and when this typically happens, there will be a few brutal days the other way! Just be prepared and don't be greedy!"
Andrew Russell  :  "I would say, my .02, the prudent move is to build consistently on your purchase referral sources, while of course taking advantage of the bone the biz has thrown us with these low rates for refi clients, being diversified is always prudent in business"
Matthew Graham  :  "RE: ISM, the lack of big, immediate reaction is telling, as hoped. It suggests more insulation from positive data in the coming days as the focus is obviously elsewhere."
Matthew Graham  :  "RTRS - ISM NON-MANUFACTURING PRICES PAID INDEX BELOW 50 FOR FIRST TIME SINCE SEPTEMBER 2009"
Matthew Graham  :  "RTRS - ISM NON-MANUFACTURING PMI LOWEST SINCE JUNE"
Matthew Graham  :  "RTRS- ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX 57.2 IN DEC (CONSENSUS 63.5) VS 64.4 IN NOV"
Matthew Graham  :  "RTRS- ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI 56.2 IN DEC (CONSENSUS 58.0) VS 59.3 IN NOV"
Matt Hodges  :  "but, could be extremely volatile around, oh i don't know.. 10am. if you have loans to lock, pay attention to ISM"
Victor Burek  :  "the day should start out very nice"