MBS RECAP: Ominous Movement in Rates Ahead of Fed

By: Matthew Graham

Someone wants us to think that rates are heading abruptly higher.  Well, to be fair, it's not so much about wanting anyone to think anything.  It has more to do with someone (a lot of someones actually) making trades that are actually pushing rates abruptly higher.  They did a good job 2 weeks ago, but took a break on Thursday and Friday.  Then they did a good job this past week and took the same break.  Now the pattern is repeating with the first half of the week marking a return to unequivocal selling pressure.

Our best case scenario when it comes to all this weakness, is that it's with an anxious eye toward tomorrow's FOMC Minutes.  Hopefully, traders are concerned that the Minutes will hold some clue as to the rate hike timeline that the Fed is no longer talking about explicitly.  Hopefully that anxiety is also being heavily compounded by a glut of corporate debt issuance.  We know that's a factor, but it's impossible to know how much of a factor.

If this isn't the case (Fed anxiety + corporate debt issuance driving rates abruptly higher), then we're in real trouble.  With the Fed on tap tomorrow at 2pm, we won't have to wait too long to find out. 

By way of offering a wild card to potentially revisit next week: keep in mind that Friday is an early close and Monday is a holiday.  Sadly, it could be the case that it's simply easier for buyers to stay sidelined until we're back from the long weekend. 


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
100-14 : -0-11
FNMA 3.5
103-25 : -0-09
FNMA 4.0
106-11 : -0-06
Treasuries
2 YR
0.6170 : +0.0400
10 YR
2.2900 : +0.0560
30 YR
3.0740 : +0.0450
Pricing as of 5/19/15 5:23PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:50PM  :  ALERT ISSUED: Negative Reprice Risk Lingers as Bonds Refuse to Bounce
9:28AM  :  ALERT ISSUED: Negative Reprice Risk Already Possible in Some Cases
8:48AM  :  Bond Markets Back in the Red after Huge Housing Starts Beat

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "As such, I really think some traders will need to rule out the possibility that there are clues in tomorrow's Minutes or Yellen's speech/Q&A on Friday."
Matthew Graham  :  "the Fed had explicit verbiage in the March announcement that said a hike was unlikely at the April meeting. At the April meeting, the announcement dropped that verbiage. To some, this means that rate-hike potential has "gone live" and that any meeting could be "the one" from here on out."
Matthew Graham  :  "some thoughts:"
Steve Chizmadia  :  "A sell off after the best 10 yr auction in recent memory, a dismal retail sales report and no love. Just looking for reasons to move higher. Trend is not our friend. "
Steve Chizmadia  :  "Seems like it has know what it wants to do and where it wants to head for a while now and it is not in our favor unfortunately"
Bill Hills  :  "does this market have any clue on what it wants to do?"
Paul Martin  :  "So Northeast housing starts drove todays beat on starts. Winter Weather truly a culprit for prior months?"
Michael Mitchell  :  "Broker World- The Lender you loved 3 months ago not always the lender you love today. But nice to have options at least..."