MBS MID-DAY: Holding Reasonable Gains After Weird Fed Comments and 30yr Auction

By: Matthew Graham •

Bond markets had an uneventful overnight session as they shook the rust off from Wednesday's Veterans Day closure.  Bond-friendly comments from European Central Bank President Draghi helped European bond markets move moderately lower in yield.  Treasuries MAYBE followed that move to a very small degree, but were definitely more inspired as domestic market participants fired up their screens for the day.

Stateside traders were fairly quick to push yields back up to overnight highs, but even quicker to defend them.  In other words, 10yr yields moved up to 2.34 as domestic trading ramped up, but bounced lower once they got there.

The bounce occurred in confluence with several other potential considerations.  Chief among these were the bigger bounces seen in commodities and European markets, which occurred in conjunction with some very weird comments from St. Louis Fed President Bullard.  Here are a few of the bullets:

  • RTRS - FED'S BULLARD SAYS POSSIBLE U.S. IS ENTERING AN ERA OF PERMANENTLY LOWER INFLATION AND INTEREST RATES
  • RTRS - BULLARD - ZERO POLICY RATE AND LOW EXPECTATIONS MAY HAVE ANCHORED INFLATION AT PERMANENTLY LOW LEVELS
  • RTRS - BULLARD SAYS "REALISTIC POSSIBILITY" THAT INDUSTRIALIZED COUNTRIES COULD FACE RATES STUCK NEAR ZERO

This is the same guy who, in August, said that the "market has it wrong" on global growth and that the Fed needs to hike regardless of markets' growth fears.  It's quite something for a Fed president to say rates could be stuck at zero, using the word "permanently" on several occasions.  Bullard is well known for making some of the wilder comments when it comes to Fed speakers, but this may be his wildest work yet.  I'm not sure what to make of it (largely because it's not too far from my own view of the macroeconomic endgame) and neither are markets.

When more liquidity came online at the 9:30am NYSE open, bond markets extended their gains just slightly.  Trading levels are currently in line with those morning gains, but it should be noted that the long-end is outperforming.  That means 10 and 30yr bonds are doing the best.  MBS are underperforming just a bit, but are still in positive territory.

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
99-22 : +0-01
FNMA 3.5
102-31 : +0-02
FNMA 4.0
105-22 : +0-02
Treasuries
2 YR
0.8790 : +0.0050
10 YR
2.3120 : -0.0244
30 YR
3.0890 : -0.0204
Pricing as of 11/12/15 1:44PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:55AM  :  Why Is The Price Up So Much On 10yr Treasuries?
10:04AM  :  Bonds Perking Up on Currency Moves
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "yes AP. At least one of them mentioned it. By and large, they don't care about most recent NFP though--not with respect to December hike anyway. Dec hike was determined many NFPs ago with the more recent examples doing more to inform path of future hikes (or lack thereof)"
Andy Pada, Jr.  :  "has recent fed speak referenced the most recent NFP #s?"
Matthew Graham  :  "correct. I've been talking to a few friends off site about it. They're mystified as well. Something about Neo-Fischerian economics... Never heard of it"
John Paunan  :  "Don't know much about economics beyond what is discussed on this board, but none of what you quoted from Bullard seems to make sense..."
Matthew Graham  :  "Ummm, low rates and low expectations most definitely have NOT anchored inflation. That's about the stupidest thing I've ever seen him say (and that's a low bar to begin with)"
Matthew Graham  :  "RTRS - BULLARD - ZERO POLICY RATE AND LOW EXPECTATIONS MAY HAVE ANCHORED INFLATION AT PERMANENTLY LOW LEVELS"
Matthew Graham  :  "RTRS - FED'S BULLARD SAYS POSSIBLE U.S. IS ENTERING AN ERA OF PERMANENTLY LOWER INFLATION AND INTEREST RATES"
Matthew Graham  :  "Yes, 5 deals already. Looks like issuers are back from vacay"
Mike Christensen  :  "GM. Mr MG. Any corporate debt on the docket yet for today?"
Matthew Graham  :  "RTRS - US JOBLESS CLAIMS UNCHANGED AT 276,000 NOV 7 WEEK (CONSENSUS 270,000) FROM 276,000 PRIOR WEEK (PREVIOUS 276,000)"