MBS RECAP: Bonds Continue Back-Tracking Before Brexit Vote

By: Matthew Graham
  • Treasuries and MBS spent most of morning in positive territory
  • Weakness kicked in during/after Yellen testimony
  • Markets were waiting for encore from last week's "bond-friendly Yellen"
  • Instead, she was balanced, thus no reason for bonds to hang around in the green

While stocks, European bonds, Sterling (Brexit panic metric), and other sectors of financial markets were relatively unchanged during US trading hours, domestic bond markets were inclined to continue their weaker trend.  This wasn't immediately apparent as bonds briefly corrected (i.e. stayed in slightly positive territory) at the start of the domestic session.  Traders were also prepared for an encore performance from the new, more bond-friendly version of Janet Yellen seen after last week's FOMC Announcement.  

Indeed, it wouldn't have made much sense for yields to keep pressing toward higher levels if Yellen had repeated her fairly gloomy assessment about low rates being the new normal.  But this time around, Yellen wasn't leaning in either direction.

In the absence of Fed dovishness, bonds were free to follow their hearts toward higher yields ahead of the 5yr Treasury auction.  The auction itself was quite poor, which merely served to keep the trend of weakness steady into the 3pm close.  The damage was minimal, with 10yr yields up roughly 2bps on the day and MBS down 2 ticks.  Several lenders repriced for the worse due to the gap between afternoon lows and the stronger morning levels.


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
102-22 : -0-04
Treasuries
10 YR
1.7020 : +0.0320
Pricing as of 6/21/16 4:02PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:05PM  :  ALERT ISSUED: 5yr Auction Was Super Weak; Reprice Risk Increases
11:51AM  :  ALERT ISSUED: MBS at Lows; Negative Reprice Risk Considerations
10:29AM  :  Roughly Unchanged as Yellen Begins Q&A

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Paul Popovich  :  "I am sitting in a Chase non-agency summit right now. 15 days for refi. They say they are trying to get down to 12 days in the next couple weeks."
Tony Garcia  :  "Initial review is 5/26 condtions are 6/15 (Jumno)"
Frank Hanna  :  "can anyone tell me what day correspondent refis that chase is working on? I do not have access"
Matthew Graham  :  "D+"
Matthew Graham  :  "RTRS - PRIMARY DEALERS TAKE 39.06 PCT OF U.S. 5-YEAR NOTES SALE, DIRECT 3.73 PCT AND INDIRECT 57.21 PCT"
Matthew Graham  :  "RTRS - U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.29, NON-COMP BIDS $32.01 MLN"
Matthew Graham  :  "RTRS - U.S. SELLS $34 BLN 5-YEAR NOTES AT HIGH YIELD 1.218 PCT, AWARDS 68.14 PCT OF BIDS AT HIGH"
Matthew Graham  :  "5yr auction outlook: recent average bid-to-cover has been 2.46. Indirects have averaged 63% of the auction. Yields relative to expectations have been mixed, but most of the past year of 5yr auctions has seen yields come in higher. The current expectation is 1.201. For more on these confusing terms: Treasury Auction Jargon, Definition, and Significance "
Scott Lushing  :  "MG what BTC we looking to go above on the 5 year?"