MBS MID-DAY: No More Gains For Bonds as Yuan Exits Free-Fall Pattern

By: Matthew Graham

So far, the trading day has gone as you would expect it to go if you agreed with the premise in the morning commentary.  Namely, without Chinese currency freely falling at an indeterminate pace, the safe haven of US bond markets is in less demand.  

Chinese Yuan have essentially been recovering ever since the wee hours of yesterday morning.  A brief dip at the start of today's Asian market hours saw US Treasuries make just as brief a move into positive territory.  Once Yuan stabilized, Treasuries continued weakening. 

The morning's domestic economic data didn't help at first.  Retail Sales were slightly stronger than expected and bond markets sold a bit more as a result.  But the selling was short-lived, and very small in the context of the past few days of movement.  Treasury trading levels are back to 8:30am levels, which are just 1.3bps higher than yesterday's close. 

MBS are showing their appreciation for the volatility ceasefire and have actually improved since the data.  Fannie 3.5s are just 1 tick weaker on the day.

Look for the next potential shift in today's trend after the 1pm 30yr bond auction.  Of course, there might be no shift, but if there is, that's the most likely time frame.


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
100-15 : -0-02
FNMA 3.5
103-21 : -0-02
FNMA 4.0
106-08 : -0-01
Treasuries
2 YR
0.6970 : +0.0280
10 YR
2.1620 : +0.0140
30 YR
2.8370 : -0.0010
Pricing as of 8/13/15 11:29AMEST

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8:53AM  :  Under Pressure Again After Decent Data

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS- US JULY RETAIL SALES EX-AUTOS/GAS/BUILDING MATERIALS/FOOD SERVICES +0.3 PCT (CONS +0.5 PCT) VS JUNE +0.2 PCT (PREV -0.1 PCT)"
Matthew Graham  :  "RTRS- US JULY RETAIL SALES +0.6 PCT (CONSENSUS +0.5 PCT) VS JUNE UNCHANGED (PREV -0.3 PCT)"
Matt Hodges  :  "Scott: use their site: http://mndne.ws/1f9ykUw"
Matt Hodges  :  "correct"
John Tassios  :  "MH, I think the annual .5% stays the same after 10/1, correct?"
John Tassios  :  "I concur with MH."
Matt Hodges  :  "2.75% for guarantees after 10/1, i believe"
Matt Hodges  :  "2%, .5% right now"
Scott Buchta  :  "quick usda question - I am trying to find out the current up-front and annual guarantee fees for usda loans and seem to be finding conflicting information. Is it 2% up-front and 40bp running? I have seen some reports of the up-front increasing to 2.75% in October and the annual moving to 50bp. Thanks"