Mortgage Backed Securities (MBS) Overview
The stock market (DJIA +208.68) closed up for the day. Just like Friday, this is another great example of the stock market having a huge swing (in this case up by over 200 points) and our MBS doing nothing…..just -1BPS.
MBS simply had nowhere to go today with the 102.63 resistance level, just overhead and fantastic support due to global fear over the potential “Greek exit.”
What really happened today? Bubkis. There were no major (or minor) domestic economic releases nor Treasury auctions to guide pricing today.
Across the Pond
Oil: Prices are dropped this morning (WTI -.016%) as Saudi output remains near record levels but then reversed course and moved into positive territory (WTI +0.91%) on the weaker than expected U.S. crude stockpile report.
China: They lowered their reserve requirement by 100BPS in an effort to stimulate investment. So far this morning it has worked as our stock market has shot up with the DOW up +200 in early trading. You might think that this type of global stock market rally is bad for long bonds and your pricing, but that simply isn’t the case in 2015(as it was in 2014 too). Bonds are also seeing great support (good pricing for your back end) from this move.
“Grexit”: Greek bond yields continue to rise as their bond sell-off enters its seventh straight session and that is reflective of global sentiment that the Grexit is forthcoming; and that is helping to continue to provide great support for pricing. ECB President Draghi was in Washington D.C. and made several comments. Essentially, he wanted negotiations to continue and wants a resolution. However, he noted that Europe is in a much better position today than last year and can handle a Grexit.
Look for tomorrow to be more of the same with no major economic releases to guide MBS trades.