MBS RECAP: Bonds Endure Nearly Comical Abuse at Hands of Corporate Market

By: Matthew Graham

If it seems like corporate debt has been an increasingly hot topic for me/us over the past few years, that's because it has been.  2014 was a record year for corporate issuance and 2015 isn't far behind.  When corporate debt isn't moving markets, we tend not to discuss it.  When corporate debt is obviously moving markets, sometimes there's very little else left to discuss.  Today was the latter.

If the weakness was about the Fed, or anything to do with Fed expectations, we would have seen the losses led by the shortest end of the yield curve. Instead, it was 30yr bonds that took the biggest beating, followed closely by 10's.  If there was a supporting role played, it was by the rebound in tradeflow momentum after Friday saw a one-sided rally for bonds.  Still, corporates were the key factor.

Sometimes analysts who pay lots of attention to the corporate debt pipeline are very much in tune with which deals are likely to be announced.  For instance, if they know that a big pharmaceutical company acquired another big pharmaceutical company for a certain amount of money and that some of the acquisition would be financed, they can do a great job of anticipating the extra supply that will be hitting bond markets, and thus indirectly causing weakness in Treasuries and MBS.

Other times, there are surprises.  Today saw more of these surprising announcements from corporate bond issuers--especially from big banks.  When Wells Fargo, UBS, and BNP blast markets with more than 6 billion dollars of unexpected bond issuance, not only does the extra supply take its toll, but we also might wonder what has these big firms in such a hurry.  On top of the bank deals, there was a glut of other issuance. 


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
100-19 : -0-14
FNMA 3.5
103-25 : -0-11
FNMA 4.0
106-12 : -0-08
Treasuries
2 YR
0.7100 : +0.0323
10 YR
2.1990 : +0.0654
30 YR
3.0160 : +0.0819
Pricing as of 9/21/15 5:48PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:54PM  :  ALERT ISSUED: Negative Reprices Now Highly Likely
12:28PM  :  ALERT ISSUED: Negative Reprices Now Becoming Probable
10:43AM  :  ALERT ISSUED: Negative Reprice Risk Increasing
9:48AM  :  Corporate Issuance Adds to Position-Squaring Bounce

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
John Tassios  :  "looks like Yellen and her doves are in firm control and swaying the other members to keep dovish stance when they meet for FED policy meetings. But you can see with individual FED speak , some of the neutral members and hawks are wanting to raise rates."
Matthew Graham  :  "RTRS- LOCKHART SAYS WATCHING EUROPEAN EXPERIMENT WITH NEGATIVE RATES"
Matthew Graham  :  "Here's an interesting comment:"
Matthew Graham  :  "RTRS- FED'S LOCKHART SAYS FED COMMUNICATES WITH OTHER CENTRAL BANKS BUT DOES NOT SHAPE POLICY WITH THE REST OF THE WORLD IN MIND"
Sung Kim  :  "even hilsenrath couldnt write anything, he had to do a podcast"
Rich Cordova  :  "That's the next domino to fall. Its been nice seeing home prices rise but for how much longer is that sustainable?"
Sung Kim  :  "it's all lies and we let IMF and World Bank announce the decision "
Matthew Graham  :  "bingo, Rich, plus keep raising their housing expense"
Rich Cordova  :  "I guess simply employing people with out any wage growth doesn't spur inflation."
Matthew Graham  :  "I don't get the recent Fed-speak. I'm at a loss for words to explain why it's so troubling. Either the current conditions justify a hike or they don't. Sure, we can talk about trends, and say that we're trending in a direction that would result in a hike, but they can't even do that because nothing is trending in that direction except the unemployment rate, which has already surpassed "hike-worthy" levels. So what do they ACTUALLY have left? Nothing... They have nothing. So they say they "expect" things to change, which basically amounts to fortune telling. And what is this 'expectation' based on? I wish I knew. "
Matthew Graham  :  "RTRS - LOCKHART SAYS IS CONCERNED ABOUT LACK OF PROGRESS TOWARDS INFLATION TARGET BUT IS CONFIDENT ENOUGH TO SUPPORT A RATE HIKE IN A "COMING" MEETING"
Matthew Graham  :  "RTRS - FED'S LOCKHART SAYS NOT CONCERNED ABOUT MARKETS PER SE, BUT WORRIED TIGHTER FINANCIAL CONDITIONS COULD CREATE HEADWIND FOR U.S. GROWTH"
Matthew Graham  :  "RTRS - LOCKHART SAYS STILL EXPECTS FED TO INCREASE RATES LATER THIS YEAR"
Matthew Graham  :  "RTRS- ATLANTA FED'S LOCKHART SAYS SUPPORTED DECISION TO DELAY INTEREST RATE RISE TO ALLOW MORE TIME TO SEE IF RECENT MARKET VOLATILITY WILL TRANSLATE INTO A SIGNIFICANT SHOCK TO THE U.S. ECONOMY"
Bryce Schetselaar  :  "so sick of corporate bonds"