MBS MID-DAY: Negative Turn After European Close

By: Matthew Graham •

Bond markets began the day in weaker territory, following a pull-back in European bond markets overnight.  The tenor would soon change as the the rush of liquidity at the 930am NYSE open resulted in a full reversal in Europe.  Bund yields led the way lower for Treasuries, with each picking up the last vestiges of short-covering for the week (buying from traders who had previously sold bonds short).

After Europe closed, US markets were left to their own devices.  Treasuries and MBS have been drifting slightly weaker ever since.  So to recap: US rates followed EU rates higher, then nicely lower.  Then when EU rates closed, US rates returned to equilibrium.  It's really that simple.  The only catch is that MBS are underperforming Treasuries to some extent due to volatility and inherently shorter duration (the average MBS coupon doesn't last as long as a 10yr Treasury and longer-term Treasuries are doing better than shorter-term Treasuries today).

Next week is Fed week, with the big press conference and all!  Naturally, focus has already shifted, and we're drifting wherever we may drift in the meantime.   Currently, the trend is not our friend as we head into the afternoon.

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
99-09 : -0-04
FNMA 3.5
102-25 : -0-05
FNMA 4.0
105-22 : -0-05
Treasuries
2 YR
0.7220 : +0.0050
10 YR
2.3850 : +0.0040
30 YR
3.0990 : +0.0030
Pricing as of 6/12/15 2:21PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:46PM  :  ALERT ISSUED: Illiquidity Distorting Prices; Negative Reprice Risk Increasing
1:29PM  :  ALERT ISSUED: Negative Reprice Risk Increasing as MBS bounce along weakest levels
10:00AM  :  Slew of European Headlines, but Little Movement; PPI a Non-Event
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Victor Burek  :  "The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 1.9 percent on June 11, up from 1.1 percent on June 3. The nowcast for second-quarter real consumer spending growth was revised up from 2.1 percent to 2.4 percent following last week's release on motor vehicle sales from the U.S. Bureau of Economic Analysis, and from 2.4 percent to 2.9 percent following this morning's retail sales report from the U.S. Census Bureau."
Christopher Stevens  :  "Looking at the FOMC schedule (http://mndne.ws/1DlBQ6D) I just realized Wed is the last Yellen 'scheduled' press conference until September and there is no Aug meeting. "
Hugh W. Page  :  "Looks like the MBA is forecasting a 17% increase in Housing Starts, a little more than 7% increase in Single Family Sales but a drop in Loan Origination activity in 2016 vs 2015. Let me wrap my head around this."
Christopher Stevens  :  "Wednesday's FOMC presser should be interesting. I assume that will be the next rate mover unless Greece does something crazy over the weekend."
Matthew Graham  :  "RTRS - U.S. MAY YEAR-OVER-YEAR PPI FINAL DEMAND -1.1 PCT (CONS. -1.1 PCT), EX FOOD/ENERGY +0.6 PCT (CONS. +0.7 PCT)"
Matthew Graham  :  "RTRS- U.S. MAY PPI FOR FINAL DEMAND +0.5 PCT (CONSENSUS +0.4 PCT) VS APRIL -0.4 PCT"
Christopher Stevens  :  "as MG they are at their lower bound and so is the 10YR (imo) can they get below .88 and 2.36 respectively...we shall see"
Christopher Stevens  :  "all eyes on the Bund today"
William Hansen  :  "If you asked me 2 weeks ago would I be happy with a 10 yr @ 2.36 the answer would defiantly be no. Yet today I am smiling from ear to ear. I want to say thank you to everyone here helping me survive that last couple of days. Especially MG!!!!"