MBS RECAP: Token Bounce, But Don't Get Excited Just Yet

By: Matthew Graham •

Most of today's trading activity was a function of previous trading--at least as far as the domestic session was concerned.  If we count the overnight session, that's where we'll find the last part of the 'set-up."  This occurred when German Bunds hit .993 and US 10's hit 2.425.  There was no event that drove the weakness leading up to it and there was no event that brought about the bounce.  Bond markets were simply determined to sell-off and then the selling had run its course. 

This might or might not mean that some magical "entry point" has been reached where investors say "Ok, ok, ok... Now I feel like it's safe to buy Bunds and Treasuries again..."  Indeed some have been calling for this since Bunds were at 0.6 and when 10yr yields first broke 2.2.  Others jumped in on the same call today. 

The fact is, it's just too soon to tell if this was THE sell-off to buy.  It might be, but 2 things are important:

1. Everything could change after NFP tomorrow.

2. For the purposes of the average mortgage lender or borrower, it's probably not a good idea to start putting down bets on the lines in the chart below reversing course before they even make it out of those little white circles...

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
99-29 : +0-09
FNMA 3.5
103-13 : +0-09
FNMA 4.0
106-03 : +0-06
Treasuries
2 YR
0.6650 : -0.0080
10 YR
2.3090 : -0.0516
30 YR
3.0430 : -0.0580
Pricing as of 6/4/15 5:24PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:48AM  :  ALERT ISSUED: Negative Reprice Risk Deceptively Present
10:10AM  :  Bond Markets Holding Modest Gains After Overnight Roller Coaster
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Michael Dormer  :  "What MH said. Me, I'm more risk-friendly. I'll take the gamble, and keep my finger on the lock trigger. Clients, though? I help them see both sides, and if they ask for my advice (and they always do), I recommend taking the safe approach."
Matt Hodges  :  "clients have a say, andy"
Andy Pada, Jr.  :  "interesting the position you take with your clients v. what you would do yourselves."
Michael Dormer  :  "+1, Hugh. Doing the exact same thing here. My entire pipeline is locked up, but I'm watching like a hawk early tomorrow for my own purchase loan!"
Hugh W. Page  :  "I'm floating my personal loan but that should not be taken as a recommendation :)"
Michael Baker  :  "MG: Thank you that helps. (Thank you so much for this site...you have saved my clients thousands since I joined and I cannot express my appreciation enough!!!)"
Matthew Graham  :  "You can't apply grocery store logic to MBS stack. It's not like the 3.0s are rotten bananas that no one will buy."
Matthew Graham  :  "keep in mind MB, that many many billions of 3.0s MUST be purchased every day, simply because someone agreed to sell someone else some 3.0s at some point in the future and either didn't have their own 3.0s, or could get these cheaper"
Michael Baker  :  "MG: After the face melter of yesterday, why would any be purchasing the 3.0 coupon? (Up 11 ticks, but confused as the market seems to be trending against this position)"
Matthew Graham  :  "RTRS- BLACKROCK'S RIEDER DOES NOT THINK THE ECB IS GOING TO END ITS QUANTITATIVE EASING PROGRAM EARLY"
Matthew Graham  :  "RTRS- GERMAN BUNDS "START TO GET INTERESTING" AT THE 1 PERCENT YIELD LEVEL -RIEDER"
Matthew Graham  :  "RTRS- BLACKROCK IS CONSIDERING BUYING MORE GERMAN BUNDS -RIEDER"
Matthew Graham  :  "RTRS- BLACKROCK'S CHIEF INVESTMENT OFFICER RICK RIEDER SAYS HE IS BULLISH ON EUROPEAN BONDS -INTERVIEW"