MBS RECAP: ISM Reaction, ADP Preparation, and Abbvie (What's an Abbvie?)

By: Matthew Graham

Bond markets sold off again today, though it wasn't necessarily destined to be the case.  In other words, it actually took several events working together to push rates up to today's highs.

The first event has to do with Abbvie, among other things.  What the heck is that, you might ask?  Whatever it is, it's apparently big enough to borrow as much money as some of the biggest corporate bond issuers, ever (seriously though, it's a pharmaceutical company who needs money to buy another pharmaceutical company).  Abbvie unleashed $16.7 bln of fresh debt supply today, which is the third biggest this year behind AT&T ($17.5 bln) and another big pharma player Actavis ($21 bln). 

When we add the "smaller" players to the mix (tiny little companies like Apple and Microsoft who issued roughly $17bln in total) along with the boat-load of other corporate offerings, 2015 is on pace to break 2014's record.  Great, so what's the point?

For some investors, some of these deals are a viable alternative to things like MBS and Treasuries!  There was over $60bln in bids submitted for the $16.7bln Abbvie deal.  There is a ton of demand out there for reasonably safe debt that actually pays a yield.  Investors pull cash from MBS and Treasuries in order to buy it, thus hurting rates in the process. 

This accounts for the shift that took place this morning even before the ISM data came out.  It wasn't an epic shift because market participants knew there would be some sort of Abbvie deal coming.  It just turned out to be a bit bigger than expected.  By the time we add a stronger ISM report into the mix, and perhaps with an eye on ADP-inspired volatility potential tomorrow morning, bond markets waved the red flag and moved defensively higher in yield.


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
100-29 : -0-09
FNMA 3.5
104-05 : -0-05
FNMA 4.0
106-19 : -0-01
Treasuries
2 YR
0.6270 : +0.0240
10 YR
2.1820 : +0.0360
30 YR
2.9080 : +0.0300
Pricing as of 5/5/15 6:10PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:02AM  :  ALERT ISSUED: Selling Continues After Stronger ISM Data; More Reprice Risk
9:56AM  :  ALERT ISSUED: Negative Reprices Slightly More Possible Ahead of ISM
9:41AM  :  ALERT ISSUED: Europe's Sell-Off Pauses; US Waits for ISM; Reprice Risk Stalking Shadows

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Sung Kim  :  "and then the problem will be that rates increases because the dollar weakens, stocks rally, etc."
Sung Kim  :  "seems like there is a stronger argument for us to be at 2.25 versus 1.85? until bunds start rallying, dont think much will help unless we get a 125k print again. even 195k could hurt"
Victor Burek  :  "224k is expectations ted"
Ted Rood  :  "be interesting to see what the expectations are after last month's debacle."
Steve Chizmadia  :  "I'm hoping that is already priced in and then some BS"
Bryce Schetselaar  :  "I don't even want to think where we will be if NFP comes in high"