Bond markets improved overnight, but were under pressure in the morning after stronger ISM Manufacturing data and then again following the release of the Minutes from the December Fed meeting. By the end of the day, a chart of 10yr Treasury yields looked like an EKG returning to a baseline. One peak for ISM and a smaller secondary peak for the Fed Minutes.
Keep in mind that all of the above is occurring in a very narrow range. Looking at the details too closely doesn’t make much sense, but this is all the movement we have to talk about!
The ISM reaction was understandable as the “New Orders” component came in at the best levels since 2004. The inflation component also ticked up noticeably, and it’s this, more than anything, that gets the attention of bond markets these days when it comes to economic data.
Ultimately, with ISM not being a dedicated inflation report, bond traders were able to shrug it off. Yields returned to the baseline before noon, with most of the bounce out of the way before 11am.
The Fed Minutes (which give a more detailed account of the conversation underlying the Fed’s monetary policy decisions) gave more attention to the potential economic effects of the tax bill than the Fed’s actual policy statement 3 weeks ago. In short, the Fed assumes there could be some benefit from the tax cuts and they would try to keep economic growth steady by raising rates faster than previously anticipated.
Unsurprisingly, this put some upward pressure on rates in the afternoon, but most of that pressure was seen in shorter-term rates. After all, the Fed Funds Rate will always have the biggest impact on the shortest-term debt as it’s the key overnight rate.
Bonds with 5yr durations and up managed to remain in stronger territory on the day (good for rates). Still some lenders were merely ‘unchanged’ on the day due to bond market weakness late yesterday that was never passed along in the form of reprices.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
102-23 : +0-05
2.4471 : -0.0179
|Pricing as of 1/3/18 4:55PMEST|
Today’s Reprice Alerts and Updates
2:37PM : Fed Minutes Show Concern About Overheating Economy
10:11AM : Bonds Slightly Weaker After ISM; Big MBS Spikes Aren’t Real
MBS Live Chat Highlights
Matthew Graham : “- MANY FED POLICYMAKERS SAID PROPOSED BUSINESS TAX CHANGES WOULD LIKELY BOOST CAPITAL SPENDING AND MIGHT BOOST ECONOMY’S POTENTIAL OVER THE NEXT FEW YEARS”
Matthew Graham : “- MANY FED POLICYMAKERS EXPECTED PROPOSED CUTS IN PERSONAL TAXES TO BOOST CONSUMER SPENDING; A FEW SAID LABOR SUPPLY MIGHT ALSO INCREASE – MINUTES”
Matthew Graham : “- FED POLICYMAKERS DISCUSSED HOW FISCAL STIMULUS OR EASY FINANCIAL MARKET CONDITIONS COULD BOOST OUTPUT TOO MUCH AND REQUIRE A STEEPER PATH OF RATE HIKES -MINUTES OF DEC. 12-13 MEETING”
Ted Rood : “RUN DU AND SEE IF YOU GET AN APPRAISAL WAIVER”
Ira Selwin : “Thats all it says – you wouldnt always order it before it expired”
Ira Selwin : “Note: The appraisal update must occur within the four months that precede the date of the note and mortgage.”
Sergio Szyrko : “Anybody know if an appraisal re-certification (fannie deal) can be ordered after the 120 day expiration? my u/w is saying it needed to be done before and we missed the date, so calling for a new report”