MBS MID-DAY: Swiss Surprise Leads to Snowball Rally For Bonds

By: Matthew Graham

The following is an excerpt from of an update that appeared this morning on MBS Live.  Members will have already seen it.

All About the Franc, 'Bout the Franc, Not Data

If there's one reason that bond markets are in positive territory today, it's the overnight shocker out of Europe.  Reuters can tell you about it better than I can:

Swiss central bank shocks markets with currency 'tsunami'

This did two positive things for US bond markets.

1. It sent the Euro to new 9 year lows.  For the most part, lower Euros correlate with lower bond yields.

2. It suggested that the Swiss National Bank (SNB) firmly believes that the ECB is going to pull the trigger on some serious iteration of QE next week.  Reason being, if the SNB had stuck to its policy of capping the Franc's value vs the Euro, it would have potentially been forced to sell a ridiculous amount of Francs. 

The point here is that, apart from the impact on the Euro (which spills over into Treasuries indirectly), there's also a big, official vote being cast on the likelihood of a big QE announcement.

Yet again, we're seeing bond markets move in a recently familiar pattern.  That includes a big-ticket event causing enough movement to shake things up in terms of technical levels and 'forced' trading (i.e. certain stop-loss levels being hit) followed by those tradeflows running their course regardless of the ensuing fundamental environment.  In other words: snowball rally.

10yr yields are pushing into new 20 month lows.  Fannie 3.0s are once again over 103-00.  Positive reprices are en route or already posted.


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
103-02 : +0-13
FNMA 3.5
105-14 : +0-08
FNMA 4.0
106-27 : +0-02
Treasuries
2 YR
0.4400 : -0.0610
10 YR
1.7670 : -0.0880
30 YR
2.4070 : -0.0590
Pricing as of 1/15/15 12:38PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:13AM  :  All About the Franc, 'Bout the Franc, Not Data

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - PHILADELPHIA FED BUSINESS CONDITIONS JANUARY 6.3 (CONSENSUS 19.9) VS DEC 24.3"
Bill Laffey  :  "awesome....my daughters are now eternally fans of MND"
Matthew Graham  :  "
MBS Live Update Issued
All About the Franc, 'Bout the Franc, Not Data"
Matthew Graham  :  "I considered that possibility, but not quite convinced."
Scott Valins  :  "is this reversal the market's reaction to a hot PPI?"
Matthew Graham  :  "RTRS - U.S. DEC PPI FOR FINAL DEMAND EXFOOD/ENERGY +0.3 PCT (CONS. +0.1 PCT) VS NOV UNCHANGED"
Matthew Graham  :  "RTRS- US JOBLESS CLAIMS ROSE TO 316,000 JAN 10 WEEK, HIGHEST SINCE WEEK ENDED SEPT 6, 2014 (CONSENSUS 291,000) FROM 297,000 PRIOR WEEK (PREVIOUS 294,000)"