MBS OPEN: Undecided Markets Await Data

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US Treasury prices fell in the overnight Asian trading session after an article in the Financial Times called into question America's AAA credit rating. Treasury prices then improved early in the European trading day after a dovish inflation report from the Bank of England. We say this is yet another example of the indecisive range trading behavior of US bond market participants. Long term market convictions are yet to be determined as most investors are still undecided on the well-being of the US economy...this implies we will continue to experience "two steps forward two steps back" price behavior as market participants balance bond supply fundamentals and the artificial curve flattening strategies of the Federal Reserve. Translation: US Treasury traders are still looking for clear direction....and MBS are doing their own thing!

Ahead of April Advance Retail Sales and April Import Prices...US stock futures are 71 points lower. If retail sales data is weak...look for the  bond market and MBS to rally. The 10 yr note will, however, run into heavy resistance at 3.13%. In terms of your rate sheet influential MBS coupons...the FN 4.0 may not stray too far from 100-00 as originators will begin to take profits when prices venture further into par territory. Look for rate sheet improvements as the FN 4.5 approaches 102-00.

Mortgage application activity fell off in the week ending May 8. The Refi index declined 11.2% with refinance application activity (as a percentage of total new apps) falling from 74.4% to 71.9%....all while mortgage rates remain near all time lows. Troubling...

Since 5pm "Going Out" Marks....

FN30________________________________

FN 4.0 -------->>>> +0-04   to 100-03  from 99-31

FN 4.5 -------->>>> +0-00   to 101-25  from 101-25

FN 5.0 -------->>>> +0-02   to 102-25  from 102-23

FN 5.5 -------->>>> +0-01  to 103-19  from 103-18

FN 6.0 -------->>>> +0-00  to 104-25  from 104-25

GN30________________________________ 

GN 4.0 -------->>>> +0-02  to 100-04  from 100-02

GN 4.5 -------->>>> +0-01   to 101-30   from 101-29

GN 5.0 -------->>>> +0-03   to 103-16   from 103-13

GN 5.5 -------->>>> +0-01  to 104-02  from 104-01

GN 6.0 -------->>>> +0-00  to 104-23  from 104-23

 

UST10YR: 3.1672%

2s/10s: 228.42 bps

 

EFFECTIVE FED FUNDS:  -0.01  to  0.16  from 0.17

LIBOR FIXINGS

O/N LIBOR:  +0.0012  to  0.2225   from 0.2212

1 MONTH:   -0.0069  to  0.3444  from 0.3487

3 MONTH:   -0.0225   to  0.8831   from 0.9056

6 MONTH:   -0.0175   to  1.4125   from 1.4300

1 YEAR:         -0.0150   to  1.7325   from 1.7475