MBS MID-DAY: A Real Mayday For Bond Markets?

By: Matthew Graham •

Treasuries and MBS are at the weakest levels in exactly a month and a half.  The time frame preceding the March FOMC Announcement saw markedly weaker levels though the important support came in around 2.14--just a bit higher than today's 2.121 high in 10yr yields.  To make matters worse, today's losses followed a WEAKER reading on ISM Manufacturing.  

That's exactly what we didn't want to see.  It speaks to a trading community that is determined to sell and simply looking to avoid major barriers to those goals.  It's not uncommon for traders to wait to sell until significant data passes in order to be sure it doesn't come in so much weaker than expected that it causes an unavoidable rally.  Today's data apparently wasn't weak enough for that.  If anything, it's the selling that's been unavoidable lately. 

There's nothing left to say from an analytical standpoint.  We're now simply witnessing the bearish scenario play out.  For the record, that bearish scenario consisted of the following observations, which you're probably sick of hearing about by now:

- extra narrow range in April suggesting the next move will be a big one

- bonds had a tough time making new gains beyond the 1.84 inflection point for the entire month, suggesting the next move might be to bounce back in the other direction.

- European bond markets had their own technical bounce that I warned might be the catalyst for the domestic move (it was)

- and now today, we've seen the bearish short term scenario in that bonds sold off despite a weaker ISM (as cautioned against in the Day Ahead: "If ISM is weak, and bonds sell-off anyway, game over"). 

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
101-15 : -0-13
FNMA 3.5
104-18 : -0-10
FNMA 4.0
106-24 : -0-06
Treasuries
2 YR
0.5990 : +0.0240
10 YR
2.1140 : +0.0790
30 YR
2.8310 : +0.0870
Pricing as of 5/1/15 12:15PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:45AM  :  ALERT ISSUED: Additional Negative Reprice Risk
10:12AM  :  ALERT ISSUED: Slight Negative Reprice Risk for Early Lenders
9:58AM  :  Holding Ground at Moderately Weaker Levels Ahead of ISM Data
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS- ISM U.S. MANUFACTURING EMPLOYMENT INDEX AT LOWEST SINCE SEPTEMBER 2009, BELOW 50 FOR FIRST TIME SINCE MAY 2013"
Matthew Graham  :  "not a very actionable result"
Matthew Graham  :  "RTRS- ISM U.S. MANUFACTURING ACTIVITY INDEX 51.5 IN APRIL (CONSENSUS 52.0) VS 51.5 IN MARCH, WHICH WAS LOWEST SINCE MAY 2013"
Victor Burek  :  "those type of comments wont help"
Matthew Graham  :  "RTRS- FED'S MESTER: GETTING CLOSE TO RATE LIFTOFF; DATA INCREASINGLY IMPORTANT"
Matthew Graham  :  "RTRS- FED'S MESTER: ALL MEETINGS ARE 'ON THE TABLE' FOR INITIAL U.S. RATE HIKE"
Brian McFarlane  :  "nope....its within the past 2 months"
Brian McFarlane  :  "has anyone seen where a veteran is receiving VA disability yet the COE states they are non-exempt from the funding fee?"
Matthew Graham  :  "most of the rest of their yield curve is negative, so I don't see why not."
Hugh W. Page  :  "I saw an article yesterday from BNP that talked about Bund Supply went from largely net negative to largely net positive this month and that supply had a big impact on yields rising. Projected to go the other way though moving forward as the ECB steps up purchases. Perhaps we'll see negative yielding Bunds before long again."
Matthew Graham  :  "click over to a 1-yr chart. Let's not get too carried away. Sure... it could always be the beginning of a bigger sell-off, but as of right now, it's no more out of trend than early March or Sep 2014"