MBS RECAP: Europe to The Rescue

Posted To: MBS Commentary

Global economic data is big business for the bond market these days. With no end in sight to the domestic economic expansion (note: 1.6% vs 0.9% f'cast in today's Retail Sales and another decades-long low in Jobless Claims), any recessionary risks have been pinned on the two biggest economies that have been sending the weakest cues: Europe and China. Earlier this week (and starting last Friday), Chinese economic data didn't do anything to help the cause of worrying about global growth. Overnight trading saw the China trade level off, however, thus opening the door for a raft of EU economic data to have its say. Among that data, it was the weaker German manufacturing PMI that set the tone overnight. German Bunds rallied sharply and pulled US Treasuries along for the ride. In the…(read more)

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MBS RECAP: Europe to The Rescue
MBS RECAP: Europe to The Rescue

Mortgage Rates Recover Modestly After Big Losing Streak

Posted To: Mortgage Rate Watch

Mortgage rates have generally been moving higher since March 28th after they bottomed out at the lowest levels in well over a year. At the time, investors were tuned-in to the Fed’s concerns about the global economy. Granted, the US economy might not have been suggesting an imminent recession, but that was far more difficult to say about China and Europe. Both economies were clearly decelerating by the end of 2018 and into the first few months of 2019. That deceleration was the biggest risk factor for the global economy and the biggest boon for mortgage rates. Weak European economic data at the end of March helped drive the long-term low rates on March 27th. But that marked the apex of panic. We haven’t seen any data quite as alarming since then and thus, the gradual increase in rates (economic…(read more)

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Mortgage Rates Recover Modestly After Big Losing Streak
Mortgage Rates Recover Modestly After Big Losing Streak

MBS Day Ahead: EU Weakness Helping US Bonds, But Don't Count Chickens

Posted To: MBS Commentary

Despite the presence of a big economic report like Retail Sales (which came out much higher than expected) or the unique event risk presented by the Barr report, the defining moment of the trading day will turn out to be the 3:30am release of just-slightly-weaker manufacturing data in Germany. Case in point: As seen in the chart, the 8:30am Retail Sales data pushed back on the 3:30am rally, but not enough to break into higher yields. Since then, European bonds have continued to slump and US bonds have continued following. Why do we care so much about a piddly little manufacturing headline in Germany? Keep in mind that, in terms of the domestic economy, it's hard to make a case for any imminent recession or significant contraction in economic growth. For such conclusions, we must turn to…(read more)

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MBS Day Ahead: EU Weakness Helping US Bonds, But Don't Count Chickens
MBS Day Ahead: EU Weakness Helping US Bonds, But Don't Count Chickens

MBS RECAP: Bonds Battle Back After Opening Weakness

Posted To: MBS Commentary

As feared, bonds were gearing up for the raft of big-ticket economic data in China overnight. On balance, that data was quite a bit better than expected. The resulting selling spree was thus fairly logical. 10yr yields nearly hit 2.62% before it was over. It definitely could have been worse. I think part of the resilience is explained by the extent to which bonds have moved to price-in economic stability (or even a rebound) in China. Such a thing would definitely be worth higher yields at home, and the last week of Chinese data keeps the risk on the table. There wasn't really a big enough reason to justify the size of Friday's bond sell-off. Combine that with today's sell-off seemingly being too light and we come to the conclusion that it's been one big move leading up to today…(read more)

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MBS RECAP: Bonds Battle Back After Opening Weakness
MBS RECAP: Bonds Battle Back After Opening Weakness

Mortgage Rates Quickly Find Themselves at 1 Month Highs

Posted To: Mortgage Rate Watch

Mortgage rates continued higher for the 5th day in a row today. This brings the average lender to the highest levels in exactly one month. At issue: a series of stronger economic reports at home and abroad have eased concerns about global growth. Not only is a strong economy associated with higher rates in general, but those “concerns” were a big part of the Federal Reserve’s decision to be more bond-friendly back in March. With concerns arguably lessened by recent data, investors may be assuming the Fed won’t be quite as bond friendly going forward. All that having been said, the Fed is NOT likely to make any big changes after one solid month of global economic data. The most immediate cause for pressure toward higher rates came overnight in the form of Chinese economic data. Along with Europe…(read more)

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Mortgage Rates Quickly Find Themselves at 1 Month Highs
Mortgage Rates Quickly Find Themselves at 1 Month Highs

MBS Day Ahead: Bonds Successfully Predict Chinese Rebound

Posted To: MBS Commentary

Over the years, there have been more times than I can count where the financial media has mistakenly assigned some significance to news or events in China. The past week has had its moments in that regard, but this time around, the Chinese economy is undoubtedly in play as a market mover. Either that, or it's being used as cover for traders to strategically back-fill the post-Fed rally that begin on March 20th–something that was ultimately accomplished this morning. Overnight economic data in China was this week's focus in terms of potential market movers. Chinese GDP came out at 6.4 vs 6.3 forecast (6.4 previously). Industrial output rose by 8.5% versus a 5.9% forecast. And Retail Sales ticked up to 8.7% from 8.2%. All of the above data points were released at 10pm ET, and had obvious…(read more)

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MBS Day Ahead: Bonds Successfully Predict Chinese Rebound
MBS Day Ahead: Bonds Successfully Predict Chinese Rebound

MBS RECAP: Bonds Keep losing Ground. Defensive Positioning or Something Worse?

Posted To: MBS Commentary

Rates were flat to start the overnight session and didn't bat an eyelash at initial strength in equities markets during Asia-only trading hours. Things changes when European trading got underway with the sizable jump in the DAX (German stocks) coinciding with the first selling streak of the day in US Treasuries. Even then, yields never went any higher than yesterday's highs before correcting a bit. We actually touched unchanged levels at 5:53am, but it was all uphill from there . Without any clear correlation to an event, headline, or related market, bond selling picked up aggressively just after 8am (when a majority of domestic traders begin their trading day). The 10 minutes of volume following the 8:20am CME open dwarfed any other 10 minute block of the day, suggesting that traders…(read more)

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MBS RECAP: Bonds Keep losing Ground. Defensive Positioning or Something Worse?
MBS RECAP: Bonds Keep losing Ground. Defensive Positioning or Something Worse?

MBS Day Ahead: Be Careful What You Read and Whom You Trust

Posted To: MBS Commentary

Reading the news this morning, I came across multiple articles with such bogus claims that I feel compelled to rant about it here. All of the offenders (I stopped looking after 3 out of 3 all said the same thing) suggested that the overnight stock surge in Europe FOLLOWED the ZEW economic sentiment survey in Germany. Were stocks higher overnight? Yes! Was there an economic sentiment report in Germany from ZEW? Yes! Are the two things related? You tell me. If you answered "No! Not only does the rally obviously have nothing to do with the ZEW data, but in fact, German stocks FELL after the ZEW data was released. What the hell were they thinking?!" You'd be right! This is but one small, isolated example of financial market coverage that doesn't take a moment to vet claims on…(read more)

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MBS Day Ahead: Be Careful What You Read and Whom You Trust
MBS Day Ahead: Be Careful What You Read and Whom You Trust

MBS RECAP: Bonds Defy Friday's Logic to Hold Flat

Posted To: MBS Commentary

What would you expect to care more about Chinese economic data: the US bond market or the Chinese stock market? Option 2? Good, I agree. Now, if you said that US bond yields and Chinese stocks were moving higher together in response to strong Chinese economic data, I could also agree with that, but I hope we could both agree that any subsequent reversal in Chinese stocks would be worth at least something to US bonds. That's what happened overnight. In fact, by 4am, Chinese equities had given back almost all of their gains from Friday. But Treasuries didn't even seem to notice. Granted, we could certainly say that Friday's moves were driven by economic data and today's were due to "something else," except of course when the first sentence of today's Reuters Asia…(read more)

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MBS RECAP: Bonds Defy Friday's Logic to Hold Flat
MBS RECAP: Bonds Defy Friday's Logic to Hold Flat

Mortgage Rates Highest in More Than 3 Weeks

Posted To: Mortgage Rate Watch

Mortgage rates continued higher to start the week, following a relatively sharp increase on Friday. Interestingly enough, the underlying bond market was stable today. In other words, it didn’t suggest higher rates. But the issue is that mortgage lenders adjust their rate sheets only a few times on the most volatile days. Many of them didn’t get around to it on Friday afternoon. Those who did were greeted with another hour of bond market weakness before the week finally ended. In other words, the underlying market was indeed suggesting we’d see mortgage rates roughly where they are today and lenders simply didn’t have an opportunity to adjust their rate sheets accordingly. This brings the average lender to the highest levels seen since before the Fed’s rate-friendly announcement back on March…(read more)

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Mortgage Rates Highest in More Than 3 Weeks
Mortgage Rates Highest in More Than 3 Weeks