MBS RECAP: Bonds Hold Big Gains as Global Markets Shed Risk

By: Matthew Graham

The Asian, European, and North American trading sessions were all dominated by news that China would devalue its currency.  There's much more to that story than meets the eye, and plenty of good recaps of the nuts and bolts.  But it's not the nuts and bolts that were the big market mover today--not yet anyway. 

Stocks and bonds moved very little relative to how much they would have moved if the Euro or Yen had tanked as much as Chinese currency did today.  The market-moving force for now is that China continues to desperately try buoying its decelerating growth.  Markets are getting the message that global growth might not be on track for as much strength as previously expected.

As such, we saw a nearly universal movement away from risk today with stocks, commodities, and bond yields all falling.  In US bond markets, it was enough for 10yr yields to break out of the recent consolidation pattern seen in the triangle below.  That's like the elimination round before getting a chance to do battle with the 2.14% yield level.  Incidentally, that's right where we closed.  A break below would be a big deal.

MBS responded fairly well to today's rally with Fannie 3.5s up nearly half a point to 104-01.  Rates matched the lowest levels in more than 2 months.


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
100-28 : +0-17
FNMA 3.5
104-01 : +0-15
FNMA 4.0
106-18 : +0-11
Treasuries
2 YR
0.6770 : -0.0520
10 YR
2.1430 : -0.0893
30 YR
2.8100 : -0.0880
Pricing as of 8/11/15 5:56PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:42AM  :  China's Surprise Currency Move Boosts Bonds

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matt Hodges  :  "careful whether its a lien or an installment debt from past year's delinquent taxes, bromi"
Victor Burek  :  "that's my understanding, plus I think they must have made at least 6 payments"
Bromi Krock  :  "what does FHA require with regards to a IRS tax lien? Monthly payments calculated into their debt load?"
Matthew Graham  :  "3yr Auction came in at 1.013 with a 3.34 bid-to-cover and 52.8% indirect bid. B+/A-. But grading on a curve with this morning's rally, a solid "A.""
Matthew Graham  :  "3yr auction coming up. Average bid-to-cover has been 3.20-3.40 range and the current expectation for the auction's high yield is 1.013. In terms of what's positive, we're looking for higher bid-to-cover and lower high yields. Indirect bids have been around 50% of 3yr auctions. Higher is better, generally."
Bill Hills  :  "Chase non-agency actually did expand their guidelines last week for the better... but they are tighter with underwriting these days... exceptions are rare and they are way more thorough in recent months (per a Chase supervisor last week)"