Learn from the Past
Overview
Mortgage backed securities (MBS) gained 9 basis points (BPS) from Friday’s close which caused fixed mortgage rates to move sideways for the shortened session.
Pricing trends have gone very much as expected. The rock-solid ceiling of resistance has once again held when tested which meant it limited any real upside for pricing.
Treasury Dump
The 2 year Treasury Auction was a mixed-bag. On the plus side, $40B went off at a high yield of only 2.619% which is the lowest (best) level since June. On the negative side, demand was very soft with a bid-to-cover ratio of only 2.31 which is the worst since 2008.
What’s on the Agenda for this Week?
Overview
While today is the first full session for the bond market this week, just about every major G20 country is closed today. Look for a light trading session as there are no major economic releases or events today and the markets have leveled off after the geo-political concerns earlier in the week.
Globally, Thursday and Friday will be the only days where all the markets are open at the same time. There really aren’t “three things” this week as there are only two real trading sessions this week and economic data will have no impact on trades. The Government “partial” shutdown is not something that will move pricing in the near term. Look for MBS to stay below the resistance line that has held for the past two weeks. (Two weeks ago, MBS -19, last week MBS +19….two week total ZERO net change).
Domestic Flavor
Taking it to the House: The October YOY Case-Shiller 20 metro city home price index hit 5.0% vs. estimates of 4.9%.
Treasury Dump: Today will be the 5 year note auction.
Market Wrap-up
Overview
MBS could not go up (thanks to the rock-solid ceiling of resistance) and has moved into the lower range. The stock market is on a tear, but that is due to a huge inflow of cash that has to be reallocated from major pension funds which may have between $80 and $100 billion that they are forced to put back into stocks by the year’s end. But it is not impacting MBS. MBS would only be impacted if traders were liquidating MBS to put money into the stock market…and this is not the case as this is literally liquid cash already held in pension funds. Rising oil prices today are something that took a little shine off of pricing. Comments out of the Administration that Fed Chair Powell’s position is “100% safe” helped to stabilize the markets.
Domestic Flavor
Manufacturing: The December Richmond Fed Manufacturing Index was much weaker than expected, showing a contraction of -8 vs. expectations for an expansion of +14.
Treasury Dump: Today was the 5 year note auction and it was very weak. Just like Monday’s 2 year, the yield actually wasn’t that bad. It came in at 2.652% which was the lowest since March. However, no one wanted any. Demand was very low with a bid-to-cover ratio of only 2.09 which is the worst in over 6 years.
On Deck for Tomorrow: Initial Weekly Jobless Claims, FHFA Home Price Index, New Home Sales, Consumer Confidence and the 7 year Treasury note auction.