Fed Minutes Hurt MBS, But Not Quite As Badly As It Seemed

Today's Fed Minutes offered a more detailed account of the meeting that took place 3 weeks ago.  Markets expected there would be more to learn on the Fed's debate over its bond buying plan.  They were not disappointed at the level of information, but MBS were a bit disappointed by the specifics.  Prices fell moderately as a result, but at times, the losses looked much bigger than they were due to the illiquid trading conditions that are typical for the day before Thanksgiving.

Econ Data / Events

  • 20min of Fed 30yr UMBS Buying 10am, 1130am (M-F) and 1pm (T-Th)

  • Jobless Claims 778k vs 730k f'cast, 748k prev

  • Durable Goods Core CapEx 0.7 vs 0.5 f'cast, 1.9 prev

  • Q3 GDP (1st revision) 33.1 vs 33.2 f'cast, 33.1 prev

  • New Home Sales 999k vs 970k f'cast, 1.002m prev

  • Consumer Sentiment 76.9 vs 77.0 f'cast, 77.0 prev

  • Core PCE Inflation 1.4 vs 1.4 f'cast, 1.4 prev

Market Movement Recap
08:46 AM

Bonds began the overnight session slightly weaker and stocks slightly stronger, but both reversed course just a few hours in.  Stock futures are roughly unchanged to start the domestic session and bond yields are just a hair under yesterday's latest levels.  MBS are underperforming inconsequentially in terms of 1.5 coupons, but right on pace with Treasuries in terms of 2.0 coupons.  No major reaction to 8:30am econ data.

11:17 AM

Moderate gains throughout the morning hours--largely in line with stock market weakness.  10yr yields bounced at .855 and are up to .867 now (just under 2bps lower on the day).  1.5 UMBS are up 2 ticks (.06) and 2.0 UMBS are up 4 ticks (.125).

01:43 PM

Bonds giving up gains now with the only detectable market movers being a bounce in equities around 10am and perhaps some defensive positioning ahead of the Fed Minutes.  10yr yields are still down 1 bp at .875, but 1.5 UMBS are down 1 tick (0.03) now at 100-27 (100-34).  UMBA 2.0 coupons are down by a similar amount intraday, but remain slightly stronger versus yesterday's close.

02:44 PM

Moderate weakness after Fed Minutes (yes, only moderate, but it sticks out like a sore thumb due to a narrow trading range leading up to this afternoon).  MBS took it harder than Treasuries (here's why).  10yr yields are still lower on the day, but just barely.  MBS are down nearly a quarter point from the highs, but it looks worse than it is due to illiquidity.