MBS MID-DAY: Widespread Negative Reprices After Heavy Pressure from European Bonds

With UK and Japan bank holidays, cash Treasuries didn't really have an overnight session (London and Tokyo are the hubs for Treasury trading during the European and Asian sessions respectively).  This also affected volume and liquidity in early domestic hours.  In this case, the lack of liquidity made it easier for Treasuries to hold their ground against an onslaught of weakness in German sovereign debt.  10yr Bunds are up a whopping 40bps in 2 weeks! 

With Treasuries outperforming Bunds, the spread between the two narrowed all morning.  Once it hit the narrowest recently levels (1.675%, set at the end of April, if you're curious), Treasuries acquiesced to the European pressure and moved rapidly higher in yield.  The move was exacerbated by corporate debt issuance as the rate-lock process often necessitates Treasury sales.

MBS joined in the move as well.  While we're only down 4 ticks at the moment, we had been up 4 ticks before that, making for a total of a quarter point in weakness from the highs.  To make matters worse, those highs generally coincided with rate sheet print times, leaving most lenders in a position to reprice negatively. 

Economic data and Fed speeches were overlooked.  That said, the data wasn't that interesting in the first place with Factory Orders coming in at +2.1 vs +2.0 forecast.  Chicago Fed Pres. Evans was also rather uninteresting, largely because he's consistently the most dovish Fed speaker, and it's no surprise to hear him calling for a 2016 rate hike, among other accommodative suggestions.