MBS MID-DAY: Surprise Surprise! Bonds Nearly Unchanged After Morning Volatility

By: Matthew Graham

If this happens to be your very first time reading this site, you should know that we've been talking a lot about a few things.  First is the fact that bond markets have been almost perfectly sideways for most of April and in general, have been lacking in conviction to challenge either side of their trading range.  Secondly, we recently began discussing the fact that markets seem predisposed to discount negative data at the moment, and instead seem like they're looking for any positivity in order to justify some latent urge to back yields up ahead of the upcoming FOMC meeting the week after next.  The final recently recurring topic is the incredible long and short term relevance of an inflection point from 1.84-1.86 in 10yr yields. 

(Incidentally, if it really is your first time reading, I suppose I should throw out my periodic disclaimer about it making more sense to follow 10yr yields when it comes to broad trends in interest rates  The justification for that is a small novel unto itself, but it's super true, I promise.)

Yields once again approached the inflection zone overnight and once again bounced without breaking through.  The initial motivation was CPI data that wasn't as downbeat as it might have been.  Most importantly it met expectations at the core level, thus giving traders something to hide behind as they pushed yields quickly higher.

But there's been no runaway sell-off!  This comes back to the lack of conviction in the first point above.  After failing to break the higher side of the range, rates have been gaining traction since the noon hour.  10's are currently back in the green and MBS are just barely into positive territory

Trading has benefited from Corporate hedging 'unwinds' (the Treasuries that are bought back after previously being sold in order to lock in borrowing costs as part of the corporate issuance process).  It's not uncommon for Friday afternoon trading to head the other direction as opportunistic accounts try to get in front of next week's corporate issuance expectations, but this generally doesn't occur until 2pm or later.  Stay on guard for that potential late-day weakness.  Otherwise, so far, so good for now, even if the lack of conviction is less than exciting.


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
102-18 : +0-01
FNMA 3.5
105-07 : +0-00
FNMA 4.0
106-30 : -0-01
Treasuries
2 YR
0.5120 : +0.0240
10 YR
1.8700 : -0.0250
30 YR
2.5340 : -0.0440
Pricing as of 4/17/15 1:25PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:05AM  :  Bond Markets Weaker After CPI; It Could Have Been Anything Really

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS- U.MICH SURVEYS OF CONSUMERS 1-YEAR INFLATION OUTLOOK PRELIM APRIL 2.5 PCT VS FINAL MARCH 3.0 PCT"
Matthew Graham  :  "RTRS - UNIVERSITY OF MICHIGAN SURVEYS OF CONSUMERS SENTIMENT PRELIM APRIL 95.9 (CONSENSUS 94.0) VS FINAL MARCH 93.0"
John Tassios  :  "DU 9.2 release this weekend, that should have the updated medical updates guides in it"
Ira Selwin  :  "Per Fannie- "Tradelines reported as medical debt (Account Type Code of MD or Remarks Code of E0166) are not shown in the disputed tradeline message if also reported as disputed, and lenders are not required to investigate the disputed medical tradeline.""
Jason Anker  :  "could you have an overlay problem? if not then send them the guides and tell them to follow rules that apply to the date your case number was pulled"
Ira Selwin  :  "maybe thats an investor overlay then?"
Mitch Mitchell  :  "guides I pulled had 2 different sets of rules, one for apps 3/16/15 and earlier and one for 3/16/15 and later...."
Matthew Graham  :  "RTRS- U.S. MARCH REAL AVERAGE WEEKLY EARNINGS ALL PRIVATE WORKERS -0.2 PCT VS FEB -0.1 PCT (PREV -0.1 PCT)"
Matthew Graham  :  "RTRS- U.S. MARCH CPI YEAR-OVER-YEAR -0.1 PCT (CONS UNCHANGED), EXFOOD/ENERGY +1.8 PCT (CONS +1.7 PCT)"
Matthew Graham  :  "RTRS- U.S. MARCH CPI +0.2 PCT (+0.2356; CONSENSUS +0.3 PCT), EXFOOD/ENERGY +0.2 PCT (+0.2273; CONS +0.2 PCT)"