MBS MID-DAY: Friday's Gains Fully Erased in Treasuries; MBS Getting Close
The overnight session was predictably uneventful with most of the world still out of the office for the Easter holiday. Plenty of market participants are out for Passover as well. So even though domestic markets are fully open today, volume and participation are lacking. One risk associated with that phenomenon is that it greases the skids for volatility by magnifying imbalances.
That's happening today, and it's not going well for bond markets. 10yr Treasuries had fully erased Friday's gains by noon today. MBS weren't far behind. Most lenders have repriced negatively, and many weren't priced any better this morning than Friday or Wednesday of last week.
Understanding the weakness is as easy as going back to our discussions from last week before NFP. The general theme of those discussions was that there was a bigger risk of weakness compared to a limited scope of improvement depending on the NFP outcome. The numbers were so appallingly weak that we were indeed able to scratch out surprisingly good gains, but that 'limited scope' was quickly seen as yields moved back to 1.84 to end the day--ominously remaining in their indecisive inflection zone (1.84-1.86).
Unsurprisingly, all hell broke loose (relatively) after 10's rose above 1.86 today. There has been plenty of bond-market-specific weakness, but it's also joined by stock market strength and talk of asset-allocation trades adding to the momentum (selling bonds to buy stocks). Why buy stocks after last week's NFP? Simple... it implies a delay in the Fed hiking rates.
MBS | FNMA 3.0 102-13 : -0-08 | FNMA 3.5 105-05 : -0-07 | FNMA 4.0 106-31 : -0-03 |
Treasuries | 2 YR 0.5000 : +0.0160 | 10 YR 1.9070 : +0.0654 | 30 YR 2.5710 : +0.0830 |
Pricing as of 4/6/15 1:09PMEST |