MBS RECAP: Still a Decent Week Despite Friday Slide

Posted To: MBS Commentary

Still a Decent Week Despite Friday Slide Thursday morning was exceptionally strong for bonds–perhaps too strong, with too much influence from artificial factors like short-covering and tech-triggered algos. Today's modest weakness reinforces a more sober assessment of the recent trend, and although rates aren't as low as yesterday, that trend is still in good shape. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Housing Starts 1.739m vs 1.613m f'cast Building Permits 1.766m vs 1.75m f'cast Market Movement Recap 09:12 AM Modestly stronger overnight, but weaker since 8am. There is no clear connection with any calendar event. Domestic traders simply showing up to sell today (booking profits on recent long positions, hedging new corporate issuance , or re-shorting bonds after…(read more)

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MBS RECAP: Still a Decent Week Despite Friday Slide
MBS RECAP: Still a Decent Week Despite Friday Slide

Best 2 Weeks For Rates in Nearly a Year

Posted To: Mortgage Rate Watch

The bond market has been pointing toward higher rates since last August. Mortgage rates were able to defy that trend at first, but finally began spiking in the new year. February and March were two of the worst back-to-back months in years. The higher rates went, the more likely it became that we’d see at least some sort of push back in the other direction. Anticipation and anxiety were running high as rates hit long term peaks at the end of March. Now 2 weeks in, April is clearly the month we were hoping it would be. Rates haven’t dropped this quickly since the pandemic began What’s with the change of heart? The bond market (which dictates rates) has a few quintessential sources of motivation. “The economy” is at the top of that list. Indeed, a brighter economic outlook (due to vaccines, falling…(read more)

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Best 2 Weeks For Rates in Nearly a Year
Best 2 Weeks For Rates in Nearly a Year

MBS Day Ahead: This Is The Shift. Now It's About Time and Scope

Posted To: MBS Commentary

For virtually all of 2021 (and much of Q4 2020), we've been tracking an uptrend in Treasury yields. As the overall move grew to a size rarely seen in the past few decades, we were increasingly eager to see a token correction for technical reasons (i.e. selling sprees can hibernate or straight up die of old age). The anticipation peaked with a terrible month-end in March and hopes for a better month as April started strong. So far, April has delivered on 100% of its promise to be a better month. It would only have taken 2-3 weeks of sideways-to-slightly-stronger momentum in bonds to classify the move as the corrective consolidation we were looking for. That much is a done deal. Now we can move on to asking the next series of questions about our newfound resilience. Questions: 1. How much…(read more)

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MBS Day Ahead: This Is The Shift. Now It's About Time and Scope
MBS Day Ahead: This Is The Shift. Now It's About Time and Scope

Mortgage Rates Falling Quickly to Lowest Levels in Weeks

Posted To: Mortgage Rate Watch

It’s no secret that mortgage rates had a rough month in March and a rough year in general. The average lender raised 30yr fixed rates by roughly half a percent in February and March alone. But April has proven to be an entirely different sort of month so far. In the past 2 weeks, rates are down nearly a quarter of a point on average. Today played a critical role in the improvement as lenders responded in waves to an exceptionally strong day for the underlying bond market (bonds are the primary driver of day-to-day rate fluctuations). One of the most interesting things about today’s move was that the bond market improved AFTER a slew of significantly stronger economic data. That’s interesting because the quintessential reaction function in the bond market is exactly the opposite! In other words…(read more)

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Mortgage Rates Falling Quickly to Lowest Levels in Weeks
Mortgage Rates Falling Quickly to Lowest Levels in Weeks

MBS RECAP: Snowball Rally For Bonds! Why? And What Next?

Posted To: MBS Commentary

Snowball Rally For Bonds! Why? And What Next? Heading into today, we expected the bond market to ignore potentially stronger Retail Sales data. Not only did bonds overlook the big beat (9.8 vs 5.9 f'cast), but they actually rallied in response. This was made all the more remarkable by the presence of 3 other better-than-expected economic reports that came out at the same time. Bonds went on to experience a full-fledged snowball rally. In today's huddle, we'll talk about what that means, what's behind it, and what might be next. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Retail Sales 9.8 vs 5.9 f'cast, -2.7 prev Jobless Claims 576k vs 700k f'cast, 769 prev Empire State Manufacturing 26.3 vs 19.5 f'cast Philly Fed 50.2 vs 42.0 f'cast, 51.8 prev Industrial…(read more)

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MBS RECAP: Snowball Rally For Bonds! Why? And What Next?
MBS RECAP: Snowball Rally For Bonds! Why? And What Next?

MBS Day Ahead: Twilight Zone: Strong Econ Data = Big Bond Rally

Posted To: MBS Commentary

Heading into today, we expected the bond market to ignore potentially stronger Retail Sales data. Not only did bonds overlook the big beat (9.8 vs 5.9 f'cast), but they actually rallied in response. This was made all the more remarkable by the presence of 3 other better-than-expected economic reports that came out at the same time. So what's driving the gains? That's a long story, including technicals, corporate bonds, overseas tradeflows, and the general front-running of post-covid Treasury range. As far as overseas flows are concerned, much has been made of Japan's heavy participation in US debt. While the participation is nothing new, the narrative of "heavy selling" in March was quite prevalent in certain circles. The theory was that Japanese investors were drastically…(read more)

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MBS Day Ahead: Twilight Zone: Strong Econ Data = Big Bond Rally
MBS Day Ahead: Twilight Zone: Strong Econ Data = Big Bond Rally

MBS RECAP: Super Sideways Ahead of Retail Sales

Posted To: MBS Commentary

Super Sideways Ahead of Retail Sales Retail Sales used to be a big ticket report, but like so many others, has been punching well below its weight post-covid. That will change at some point. We could see vague hints of that change as early as tomorrow. Either way, those mere hints would be more exciting than anything that happened today. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Import Prices 1.2 vs 1.0 f'cast Export Prices 2.1 vs 1.0 f'cast Market Movement Recap 08:31 AM Calm, quiet overnight session. Minimal movement in Treasuries. Modest weakness. 10yr yields up 1.2bps at 1.632 and UMBS are perfectly unchanged. 12:13 PM Modest additional weakness for Treasuries, mostly dragged higher in yield by sharper weakness in European bonds. Technicals and corporate issuance are also…(read more)

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MBS RECAP: Super Sideways Ahead of Retail Sales
MBS RECAP: Super Sideways Ahead of Retail Sales

MBS Day Ahead: Bonds Still Staring Down Range Boundaries

Posted To: MBS Commentary

Yesterday was good for bonds with 10yr yields covering more ground toward lower yields during domestic trading hours than any other day since February. Nonetheless, when faced with an opportunity to break below the 1.62% resistance level, they ran the only play in the playbook (they bounced higher). To be perfectly fair to the bond market, this type of behavior is pretty normal, even when yields are getting ready to break toward lower levels. To be clear, the pattern we're seeing now doesn't necessarily imply a higher than average likelihood of a breakout. Rather, the point is that 1.62% resistance doesn't have a bearing on what will happen in the future. We'll break lower if we're going to break lower and there's nothing about the bouncy behavior that necessarily suggests…(read more)

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MBS Day Ahead: Bonds Still Staring Down Range Boundaries
MBS Day Ahead: Bonds Still Staring Down Range Boundaries

MBS RECAP: Strong Showing With Help From Vaccine Drama and a Solid Bond Auction

Posted To: MBS Commentary

Strong Showing With Help From Vaccine Drama and a Solid Bond Auction The day began with bonds falling back to yesterday's range after rising in the overnight session. Concerns over the J&J vaccine were in focus. Inflation data (CPI) came out stronger than expected, but bonds took it in stride, ultimately rallying back into positive territory within 10 minutes of the data. The day's biggest ally was yet to join the fight, but when the 30yr bond auction results came out, its allegiances were clear. Even after a morning of modest gains, the auction still managed to post strong results, thus adding solid reinforcement for the current consolidation pattern. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Core Annual CPI 1.6 vs 1.5 f'cast, 1.3 prev Market Movement Recap 07:51…(read more)

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MBS RECAP: Strong Showing With Help From Vaccine Drama and a Solid Bond Auction
MBS RECAP: Strong Showing With Help From Vaccine Drama and a Solid Bond Auction

MBS Day Ahead: As Expected, Bonds Take Higher Inflation in Stride

Posted To: MBS Commentary

It's a sign of the times that the bond market responded with a modest rally following a stronger reading on CPI and a looming record-size 30yr bond auction this afternoon (not to mention stocks trading at all-time highs). Granted, yields are now 100bps higher than they were in September, and much of that 100bps has been an effort to get ahead of more growth/inflation/bond supply. The bigger questions surround the inflation/growth outlook several months down the road, as markets get an increasingly clear idea about what the post-covid economy looks like. Despite a relatively smaller move in the big picture, a quick spike in volume lets us know that the market is, at the very least, tuned in to the big ticket inflation reports. In fact, today's data garnered a bigger response than the…(read more)

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MBS Day Ahead: As Expected, Bonds Take Higher Inflation in Stride
MBS Day Ahead: As Expected, Bonds Take Higher Inflation in Stride