MBS Week Ahead: True Inflection Point Will Test Resolve of Post-Jobs Bounce

By: Matthew Graham

Bond markets sold-off too far and too fast heading into last week's jobs report.  In fact, even by Thursday morning (overnight), the sell-off had reached such extreme levels of capitulation that there was not one drop left to sell.  As such the biggest surge of bond-buying last week arrived not after Friday morning's NFP, but instead in the middle of the night on Thursday.  The most fascinating thing about that buying is that it occurred with no salient event to serve as motivation.  The "event," in this case, was the tradeflow exhaustion.

The ominous thing about rallies that happen due to selling exhaustion is that they're not typically built on sturdy foundations.  They have more to do with a temporary lapse in pain as opposed to the determined creation of pleasure.  Quite simply, they're positive corrections in a negative trend.

Is that what the past 2 days have been?

We have enough days in the week ahead to find out, most likely.  More importantly, we're getting close to a very important inflection point--one of the only true inflection points of the financial crisis era: 2.05.  This one has more history than any others during this time as it was the first major technical level established in December 2008-January 2009.  10yr yields are once again approaching this inflection point, and a break below would tell us everything we need to know about the current correction (it would tell us it's more than just a correction!).

In terms of the week's data, Retail Sales on Wednesday and Industrial Production on Friday are the biggies.  Treasury Auctions on Tue-Thu also deserve a look.  Punctuating those events will be a moderate amount of reasonably important data, but none of it earth-shattering.  More important than the B-group data will be European bond markets, which have undergone a much bigger rout than US Treasuries.  Realistically, if European bonds can't dig in their heels, it's highly unlikely that we'll be able to either.


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
101-14 : -0-01
FNMA 3.5
104-20 : +0-00
FNMA 4.0
106-26 : +0-00
Treasuries
2 YR
0.5840 : +0.0120
10 YR
2.1770 : +0.0346
30 YR
2.9270 : +0.0313
Pricing as of 5/11/15 7:30AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Monday, May 11
10:00 Employment Trends May 127.7
Tuesday, May 12
0:00 Roll Date - Fannie Mae 30YR, Freddie Mac 30YR *
13:00 3-Yr Note Auction (bl)* 24
Wednesday, May 13
7:00 Mortgage Market Index w/e 427.3
8:30 Import prices mm (%)* Apr 0.3 -0.3
8:30 Retail sales mm (%)* Apr 0.2 0.9
8:30 Export prices mm (%)* Apr 0.1 0.1
10:00 Business inventories mm (% ) Mar 0.2 0.3
13:00 10-yr Note Auction (bl)* 24
Thursday, May 14
8:30 U PPI exFood/Energy MM (%) Apr 0.1 0.2
8:30 Initial Jobless Claims (k)* w/e 265
8:30 Continued jobless claims (ml)* w/e 2.228
13:00 30-Yr Bond Auction (bl)* 16
Friday, May 15
0:00 Roll Date - Fannie Mae 15YR, Ginnie Mae 15YR, Freddie Mac 15YR *
8:30 NY Fed manufacturing * May 4.50 -1.19
9:15 Industrial output mm (%) Apr 0.1 -0.6
9:15 Capacity utilization mm (%) Apr 78.4 78.4
10:00 US U Mich Sentiment Prelim May 96.0 95.9