MBS RECAP: Bonds Keep Things Interesting Near Range Boundary

By: Matthew Graham •
  • European bond markets helped push Treasuries weaker overnight
  • 10yr yields hovered near 1.80%, the upper end of the recent range
  • Once again, economic data was largely overlooked 
  • A strong 30yr bond auction helped us maintain the range, but no major recovery

Bond markets are making things interesting by trading very close to the upper end of the range we're watching without firmly breaking through it.  Case in point, 10yr yields touched 1.804 and 1.802% on several occasions today before snapping back under the 1.80% range boundary.

The prelude to those spikes came during the overnight session as European bond markets sprang higher in yield after inflation data came out steadier than expected.  In the domestic session inflation data also got markets moving, but it was only a brief spike toward (but never into) stronger territory for bond markets.  Strength quickly gave way to weakness as traders remained cautious ahead of the afternoon's 30yr bond auction.  

The auction itself was strong, with the awarded yield coming in well below the 1pm consensus.  That's uncommon for a 30yr auction, and it was worth a bit of rally this afternoon.  That said, if there was truly some strong, underlying desire to bet big on a bond rally after the auction cycle, we definitely would have seen far more strength than we did.  As it stands, 10yr yields only made it back to roughly 1.78% before pulling up and range-trading between there and 1.80 for the rest of the day.

From an analytical standpoint, days like today are frustrating, because they're equivocal.  It wasn't quite weak enough to conclude that we're in big trouble, but it keeps that possibility front and center for yet another day.

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
102-16 : -0-03
Treasuries
10 YR
1.7920 : +0.0300
Pricing as of 4/14/16 4:19PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:08PM  :  First Move is Positive After 30yr Auction
11:51AM  :  ALERT ISSUED: Negative Reprice Risk Increasing For Only a Few Lenders
8:45AM  :  Weaker CPI Barely Registers a Reaction in Bonds
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - U.S. REGULATOR SAYS IT EXPECTS APPROXIMATELY 33,000 BORROWERS WILL BE ELIGIBLE FOR A PRINCIPAL REDUCTION MODIFICATION"
Matthew Graham  :  "RTRS - BORROWERS MUST HAVE OUTSTANDING UNPAID MORTGAGE PRINCIPAL OF $250,000 OR LESS, MARK-TO-MARKET LOAN-TO-VALUE RATIOS MUST EXCEED 115 PERCENT -U.S. REGULATOR"
Matthew Graham  :  "RTRS - U.S. REGULATOR SAYS PRINCIPAL REDUCTION TO BE OFFERED TO OWNER-OCCUPANT BORROWERS WHO ARE AT LEAST 90 DAYS DELINQUENT AS OF MARCH 1"
Matthew Graham  :  "RTRS - U.S. HOUSING FINANCE REGULATOR SAYS FANNIE MAE, FREDDIE MAC TO OFFER PRINCIPAL REDUCTION TO SOME SERIOUSLY DELINQUENT, "UNDERWATER" BORROWERS"
Dez Loessberg  :  "question-on HARP, can we payoff/include 2nd if it was a part of original Fannie refi or do we have to subordinate?"
Matthew Graham  :  "RTRS - PRIMARY DEALERS TAKE 24.08 PCT OF U.S. 29-YEAR 10-MONTH BONDS SALE, DIRECT 10.82 PCT AND INDIRECT 65.11 PCT"
Matthew Graham  :  "A-, pretty solid for a 30yr auction."
Matthew Graham  :  "RTRS - HIGH YIELD AT LATEST 29-YEAR 10-MONTH BOND SALE WAS MORE THAN 1 BASIS POINT BELOW ITS 1 P.M. WHEN-ISSUED LEVEL - REUTERS DATA"
Matthew Graham  :  "RTRS - U.S. 29-YEAR 10-MONTH BOND BID-TO-COVER RATIO 2.40, NON-COMP BIDS $12.49 MLN"
Matthew Graham  :  "RTRS - U.S. SELLS $12 BLN 29-YEAR 10-MONTH BONDS AT HIGH YIELD 2.596 PCT, AWARDS 81.30 PCT OF BIDS AT HIGH"
Matthew Graham  :  "can signal that dealers thing it's gonna be good"
Victor Burek  :  "that's good?"
Matthew Graham  :  "WI dropped to 2.610 right after the auction cut-off at 1pm"
Victor Burek  :  "sure hoping for a relief rally"
Matthew Graham  :  "30yr auction, expected yield = 2.615. Average bid-to-cover is 2.38, and 30yr reopenings (today's type of auction) tend to come in higher than the expected yield by an average of 0.25bps. Indirect bidding averages nearly 60%."