MBS RECAP: As Far as Down Days Go, Not Too Bad

By: Matthew Graham

MBS ended the day in slightly weaker territory, and they did so in about the gentlest possible way.  The domestic session began with trading levels in much weaker territory after Treasury yields rose somewhat significantly overnight.  From a deficit of nearly 3/8ths of a point, Fannie 3.5 MBS climbed their way back within an eighth of a point of 'unchanged' by the close.

Actually, the bounce back had fully run it's course by noon.  That was more a factor various market closures--especially European equities and the London Metal Exchange.  That's not normally very important for domestic bond markets, but with the recent volatility in commodities, copper prices (among other things) have been more correlated with Treasuries than normal.  In today's case, a rebound in copper prices was one of the many factors that contributed to earlier weakness in bond markets, and a late-session correction helped bonds bounce back.

Commodity fluctuations were joined by heavy corporate debt issuance in completely overshadowing any input from economic data (corporate debt creates more supply in bond markets and Treasuries can be sold during the hedging process, both hurting rates).  That worked to Treasuries disadvantage considering the day's only significant data was a much weaker than expected Consumer Confidence report.  Still, it's not unfair to argue that the weak data very likely helped bonds hold the ground they were already attempting to hold earlier in the morning.


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
100-06 : -0-03
FNMA 3.5
103-14 : -0-03
FNMA 4.0
106-03 : -0-03
Treasuries
2 YR
0.6700 : +0.0160
10 YR
2.2500 : +0.0340
30 YR
2.9630 : +0.0350
Pricing as of 7/28/15 5:42PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:58AM  :  Pull Back is Here; Assessing Size and Momentum

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "I haven't looked into the calculation change very much, but I know the assumption is in line with your question DG. In other words, if it's a big beat, that will be the first place people look to rationalize."
Tark Ells  :  "Thanks everyone for the info, I'm reading the provided materials, very helpful!"
David Gaffin  :  "MG- May have missed this but what are the thoughts on the impact of the change in GDP calcuation on Thursday? If it is a big beat, might it be attributed to the change or is the change anticipated to be a non-event?"
Matthew Graham  :  "There's really no way to know. It would be like trying to predict the future. We can identify risks and opportunities. Obviously, FOMC tomorrow is a risk. The fact that we're slightly weaker today after a good run of gains is a risk. The fact that the pullback is this shallow could also be looked at as an opportunity. Whether or not it makes sense to pursue that opportunity in light of the risks is up to you and the client. There's never one right answer for everyone, which is why we have stuff in the knowledge base like LOCK OR FLOAT? "
Matt Hodges  :  "http://mndne.ws/11pZGyA"
Matt Hodges  :  "even so, you won't know how bond traders react anyway. Have you read GUTFLOP yet?"
Matt Hodges  :  "Look at economic calendar for events, Tark"
Ted Rood  :  "Just the Fed tomorrow......;)"
Tark Ells  :  "New guy here. Have a client that I need to lock by no later than this Thursday. Should I lock today or let it ride and keep an eye on it for next day or so? Just not sure if anything's coming down the pipe later today or in next couple days that would swing things one way or other. Any help would be appreciated!"