MBS CLOSE: Simple, Yet Effective
Dare it be said that MBS had a good day today? Moreover, with no overly complex causes warranting tome after tome of explanation?
Effects of the "traditionally supportive week" were felt to some extent today (even though it's a week after) as Dollar Rolls benefited the stack. Rolls were expertly explained by AQ earlier today. If you haven't read it, DO NOT miss it. Print it if you have to. Understanding this topic is one of the things that will set you apart even from others with an understanding of MBS.
In addition, we caught a boost from our once and current partner, the yield curve. It was "Indecision 2009" following the 3yr auction, and indeed the 3yr itself didn't move much at all on the day. But the longer duration tsy's saw a lot of back and forth, finally ending up 9 ticks improved in 10's, but heartily improved in the belly with 7's up 16 and 5's up 12. Good stuff for MBS.
So two simple reasons (assuming you somewhat grasp Dollar Rolls) for some positivity today, not requiring any further analysis than that which has already been given. To see the most current MBS prices any time, it's all about our RATES PAGE.
DON'T, however, expect simplicity tomorrow. It's a bit ridiculous actually, so instead of a paragraph, we must resort to a numbered list:
- First day of trading July coupons as the "on the run" (OTR) coupon. June coupons will continue their settlement process culminating on Thursday. Though June coupons no longer hold any analytical meaning for us, the allocation considerations that come into play during settlement exert "behind the scenes" forces. AQ's discussion on rolls is a good example. By tomorrow, accounts will know that much more about their funding lines being replenished as well. We've seen this have a salubrious effect on certain lenders and desultory on others. A bit of a crap-shoot. So don't "shoot" us if these behind-the-scenes forces prompt some counterintuitive pricing decisions from your lenders.
- The biggie may be the $19 bln 10 yr note auction. We've talked enough about auctions this year to understand why. In addition, the 10yr is America's sweetheart AND it's a healthy $19b. Should make for some excitement...
- Fed's beige book at 2pm. Normally not a major mover, but in this "all eyes on the fed" market, everything is microscoped.
- We'll see if the hits keep coming in the MBA application survey. more mortgage/housing recovery? Find out at 7AM, or hit snooze, your call.
- April International Trade at 830AM.
- Treasury Budget which includes GSE MBS purchases.
- Richmond Fed's (there's that word again!) Lacker speaking on Economic outlook at 10AM
- Fed Governor Duke speaking on Consumer Protection (eh...) at 12:15
- Senate Banking Committee hearing at 230pm.
Long story short: could be a crazy day, or like the many diseases in Mr. Burn's body, a diverse group of data with vastly different suggested outcomes could all combine to balance each other out and MBS might not move at all! Well, that was more for the Simpson's reference than to suggest it might actually happen... If you were floating this AM, you will probably still be tomorrow and thus will be in "reaction" mode. So tune in then and hopefully we can share more good reactions than bad.
For those that need their end of day chart fix:
Reading list reminders (make sure you've read the following if you have not already):
- Yesterday's Close with a very important chart to see at the bottom.
- GUT FLOP