MBS OPEN: Rich Yield Spreads Moderating Price Gains
Preliminary GDP has been released: -5.7% vs. expected -5.5% (advance reading was -6.1%)
Preliminary GDP Deflator: +2.8% vs. expected +2.9% (advance reading was +2.9%)
PCE Price Index: -1.0% vs. expected -1.0% (advance reading was -1.0%)
Consumer Spending: +1.5% (+2.2% advance reading)
After the release the UST10yr yield fell from 3.63% to 3.58%....and "rate sheet influential" MBS coupons (FN 4.5) kept pace with price momentum... rallying 2/32.
The current coupon (aka rate sheet influential) will run into some resistance if the 10 yr loses steam....especiallly as the yield spread between the FN 4.5 and the UST10YR approaches +90 bps (which has been where traders have deemed the coupon too rich of late)....currently the FN 4.5 is about +92/10yr after reaching +90/10yr immediately following the prelimnary GDP data release. Since then price action has gone sideways/showed signs of weakening...this is our technical resistance level on the day (Matt likes to use UST5YR so he will likely say +208/5yr will be our resistance for the day (same thing different benchmark).
Today is the last trading day of the month...usually a supportive time for the MBS stack (portfolio managers compare returns to Barclays Index). Lenders may be hesitant to pass along gains while the market is repositioning itself after the huge shift in sentiment (duration shedding) this week....plus its Friday.
Chart Coming
2s vs. 10s: 263.92
2s vs. 30s: 352.93
5/28 EFFECTIVE FED FUNDS: +0.00 to 0.17 from 0.17
LIBOR FIXINGS
O/N LIBOR: +0.0100 to 0.2713 from 0.2612
1 MONTH: -0.0037 to 0.3162 from 0.3200
3 MONTH: -0.0113 to 0.6563 from 0.6675
6 MONTH: -0.0200 to 1.2400 from 1.2600
1 YEAR: -0.0200 to 1.6000 from 1.6200