MBS Live Recap: MBS Flip Script After Treasury Auction; Bonds refuse to chase stocks
33 mins, 32 seconds ago
MBS Flip Script after Treasury Auction; Bonds refuse to chase stocks
It was a pretty sloppy day of gains for the bond market, with Treasuries significantly underperforming early on and MBS underperforming. The scenario was reversed in the afternoon as a strong bid at 2 years helped the market to reduce the value of bonds with shorter maturities. MBS have a shorter duration than 10s, so it was not surprising to see an outperformance since 2s easily outperformed 10s. From a technical perspective, it was perhaps telling that 10-year yields refused to break the 1.71% pivot point as stocks were down more than 4% (S&P). Frustratingly, bonds lost ground as stocks rallied in the past hour of trading.
Buy MBS from the Fed 10 a.m., 11:30 a.m., 1 p.m.
Markit Composite PMI ……..50.8 vs 57.0 prev
Markit services PMI ………..50.9 vs 57.6 previous
Markit Manufacturing PMI …55.0 vs. 57.7 previous
Flattened during Asian hours, then stronger in response to a strong rally in EU bonds. Weaker stocks help bonds early. Treasuries outperformed, 10-year down 5.4 basis points. MBS up an eighth of a point.
Relatively extreme sell-off in stocks with S&P futures down more than 3%. Bonds are not very receptive, with Treasuries trading sideways all morning. Levels are consistent with the last update, but MBS has increased a bit more (up to 0.19 now in 3.0 coupons).
MBS have significantly outperformed since 1pm following a strong auction of 2-year Treasury bills (and its implications for the steepening of the curve). The 3.0 coupons are up more than a quarter point now while 10-year yields remain in line with previous levels.
Treasuries are weakening slightly, apparently in response to a rally in stocks late in the day (even though they were unwilling to follow the decline in stocks earlier). MBS outperformed, still up a quarter point, even though 10-year yields are down just 1.5bp.
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