MBS RECAP: Bonds Show Their Hand After Morning Head-Fake

By: Matthew Graham •
  • Modestly strong overnight session gave way to losses following Retail Sales data
  • Bonds never went too red and then gradually found footing
  • No major motivations for rally in terms of data or related markets
  • But the general trend is lower in both stocks and bonds over the past few days
  • 10's broke below 1.72 to close.  Fannie 3.0s gained 5 ticks

It turned in to quite a nice afternoon for bond markets after a morning that wasn't too offensive in its own right.  Treasuries were stronger overnight as markets traded "risk-off" (sell stocks/buy bonds) during Asia's trading hours.  European hours brought a sideways consolidation of that move, but Treasuries managed to hold their ground even as European bond yields spiked. 

Retail Sales came in much stronger than expected at 8:30am and bonds threw a nice head fake toward weaker territory before finally making their intentions known for the day.  I say "intentions" because there really isn't any overt motivation for the rally other than to say bonds wanted to rally.  Throughout the day, there are too many examples of stocks and oil moving in the opposite direction for external markets to be the consideration for bonds.  

In technical terms, 10yr yields broke below an important floor of 1.72, but the "max resistance" lies ahead at 1.68.

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
102-25 : +0-05
Treasuries
10 YR
1.7020 : -0.0560
Pricing as of 5/13/16 5:48PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
8:45AM  :  Bonds Moderately Weaker After Data, but Fighting Back
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
John Tassios  :  "To SK, I will add my 2 cents. ECB buying corp bonds is very risky and risks pricing and liquidity distortions and more volatility in spreads in bond mkts."
Christopher Stevens  :  "I'm pleasantly surprised to see the 10YR pushing back towards 1.72 w/out the 2yr moving lower."
Matthew Graham  :  "SK, only if it fails to help Europe. Otherwise, I see temporary benefit and long term harm. Temp benefit being that there are that many more fixed income securities being taken off the market."
Sung Kim  :  "MG, do you see ECB corp bond buying as a positive for us?"
Ryan P Kelly  :  "Tony, as we all know there are plenty of round pegs out there that don't fit in the square hole. Automated LO's will never be able to provide the strategy to help these round pegs. The automated LO's simply eliminate the LO's that give us all a bad name anyway, the paperhangers out there are the ones that will get hurt."