MBS MID-DAY: Strong Start Reverses after CPI; Yellen up Next

By: Matthew Graham •

Trading has been surprisingly reactive to data this morning with stronger CPI resulting in an obvious selling spree.  Up until that point, bond markets were stone silent right through the overnight session.  That was especially true during Asian hours.  From there, Europe didn't add any volatility, but a gentle bond market rally made for an even gentler version in Treasuries.

By the start of the domestic session, 10yr yields were down to 2.17 after closing at 2.195 yesterday.  Fannie 3.0s were back up to 101-04 and 3.5s up to 104-10. 

Despite only a modest beat in CPI ( core +0.3 vs +0.2 forecast), bonds sold quickly at 8:30am.  This brought 10's up to 2.226 and Fannie 3.0s down to 100-25, making for a quarter point loss on the day.  There was another glut of weakness at 10am--this time for no apparent reason.  That sort of "no apparent reason" movement suggests extra thin liquidity conditions on this holiday-shortened Friday.  The implication is that if illiquidity is greasing the skids so far today, it could do the same for Yellen's speech.

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
100-25 : -0-08
FNMA 3.5
104-01 : -0-06
FNMA 4.0
106-15 : -0-05
Treasuries
2 YR
0.6180 : +0.0410
10 YR
2.2090 : +0.0140
30 YR
2.9790 : -0.0120
Pricing as of 5/22/15 12:02PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:03AM  :  ALERT ISSUED: Negative Reprice Risk Increasing
8:48AM  :  ALERT ISSUED: Surprisingly Weak Reaction to Slightly Stronger Inflation
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Hugh W. Page  :  "Is it okay if I steal that "locking at a loss in exchange for a lottery ticket" line MG ? Something clients can understand :)"
Matthew Graham  :  "but slightly more hopeful these past two weeks than the 3 weeks before. It's an environment where those who accept the risks can float if that's their thing and they are OK locking at a loss in exchange for a lottery ticket."
Christopher Stevens  :  "been telling the LO's in my office that for weeks MG. We still have a large % floating. Crazy"
Matthew Graham  :  "Totally possible that a bounce materializes, but not something I'd risk floating on until it happens"
Matthew Graham  :  "We have yet to see a compelling push back toward lower yields since then. Only head-fakes"
Matthew Graham  :  "whoa? this has been the case all month. In fact, even in mid April when we noted resistance at the critical pivot points in mid 1.8's. "
Sung Kim  :  "whoa"
Matthew Graham  :  "lock every day that 10's aren't moving strongly below 2.14"
Andy Pada, Jr.  :  "or in the alternative, I was suggesting locking in yesterday"
Sung Kim  :  "so its AP's fault?"
Matthew Graham  :  " Andy Pada, Jr.: 5/21/15 4:15pm even if lower, inflation is a non issue. but it it shows hot, then we're in trouble View in Log Andy Pada, Jr.: 5/21/15 4:11pm can the CPI help tomorrow? I have a feeling that it can only hurt us. "
Christopher Stevens  :  "MG- I am going to go out on a limb and think most traders have sell/buy triggers set tight today and will have some junior traders watching close while they head out for the weekend. Unless something very drastic changes I am thinking todays movement will not be nearly as important as how markets move on Tuesday. Although this bump up before breaking through 2.15 has the nerves a bit on edge."
Sung Kim  :  "why is this hurting us?"
Matthew Graham  :  "RTRS- U.S. APRIL CPI YEAR-OVER-YEAR -0.2 PCT (CONS -0.1 PCT), EXFOOD/ENERGY +1.8 PCT (CONS +1.7 PCT)"
Matthew Graham  :  "RTRS- U.S. APRIL CPI +0.1 PCT (+0.1027; CONSENSUS +0.1 PCT), EXFOOD/ENERGY +0.3 PCT (+0.2558; CONS +0.2 PCT)"