MBS RECAP: Big Move in Yield Curve; MBS Unchanged

By: Matthew Graham

All of today's drama--if you can call it that--came in the form of curve trading.  That refers to traders adjusting bond market holdings by selling one part of the yield curve to buy another.  In today's case, the shorter maturities were sold and longer maturities were bought.  This so-called curve flattening is consistent with several of the key inputs we had today. 

The first input was the Core CPI (consumer price index, an inflation measure) reading, which came in  right in line with expectations at +0.2.  Treasuries generally weakened on this data across the curve, but 2 and 3yr Notes weakened the most as they would be more affected by changes in Fed rate hike timing. 

The second input was the ongoing rate-lock unwinds after a big week of corporate bond issuance.  Corporations sell Treasuries in the same way lenders sell MBS to effectively lock in rates (because corporate pricing uses Treasury yields as an index). After the bonds are sold off, the hedges are often bought back (buying Treasuries, thus indirectly helping MBS).

Finally, stocks tanked big time today.  S&P futures fell more than 40 points peak to trough.  While Treasuries barely blinked at this, the mass migration out of equities has to end up somewhere, and bonds look to have picked up a few token asset allocation trades. 

More important than any of the minutia is that rates continue to be unwilling to break below the important technical resistance that's blocked our progress for nearly a month.  Same story as yesterday: the longer this doesn't change, the more ominous it becomes.  Or at the very least, the bigger the next move will be.


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
102-17 : +0-00
FNMA 3.5
105-07 : -0-01
FNMA 4.0
106-31 : +0-00
Treasuries
2 YR
0.5120 : +0.0240
10 YR
1.8650 : -0.0300
30 YR
2.5180 : -0.0600
Pricing as of 4/17/15 5:23PMEST

Today's 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

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Ira Selwin  :  "You'll actually net 25 bps better in some cases on the purch and r/t"
Ira Selwin  :  "and N/O/O hits up"
Ira Selwin  :  "C/O hits up .375"
Ira Selwin  :  "so R/T and purch net 0 change"
Ira Selwin  :  "Yeh no adverse fee"
Ira Selwin  :  "LLPA changes just announced - http://mndne.ws/199oMWp - don't get too excited"
Matthew Graham  :  "side effect of corporate hedging unwinds benefiting treasuries most directly"
Mike Drews  :  "mbs lagging today"
Matthew Graham  :  "maybe Fed at the end of the month"
Randall Brown  :  "So how big of a force majeure will it take to get 10-year yields to break the 1.84 floor?"