Yesterday’s massive stock market rout was enough to coax reluctant bond yields to the lowest levels since the end of January. Given that the end of January occurred a week ago today, that gives you an idea of just how lopsided the trend has been (i.e. a seemingly epic 14bp rally only gets you back to rates from a few days ago, and at the time, those rates were the highest in several years).
The video in today’s MBS Live Huddle breaks down just how much movement it took in stocks to get the desired effect in bonds. The cliff notes are as follows: S&P futures fell more than 7% while 10yr futures prices (the best apples to apples comparison) rose less than 1.5%. In other words, bonds really didn’t show up to rally yesterday, and it was only the buckets of cash falling out of the stock market that did the trick.
There was always a risk that stocks would stabilize today, and that’s exactly what happened. That means we did NOT get what we needed in terms of technical confirmation of a bond market reversal. Specifically, we wanted to see technical floors being broken for more than a single day. Instead, most of today’s movement reinforced those floors–especially the important mid-2.6% range which acted as a key ceiling on the way higher 2 weeks ago.
Not only did we get negative technical moves today, but they occurred in staggeringly high volumes. The only saving grace is that bonds weren’t exceptionally quick to move back to yesterday’s highs. Even so, it’s not safe to expect we won’t see those highs in the coming days. If we don’t, we can go from there, but for now, stay safe.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
100-14 : -0-15
2.8054 : +0.0114
|Pricing as of 2/6/18 5:01PMEST|
Today’s Reprice Alerts and Updates
3:56PM : ALERT ISSUED: Negative Reprice Risk Increasing
3:27PM : ALERT ISSUED: Testing Weaker Limits; Reprice Consideration
9:52AM : ALERT ISSUED: Technicals, Themes, and Reprice Considerations
MBS Live Chat Highlights
Jude Bridwell : “almost feels like yesterday never happened”
Matthew Graham : “15yr MBS have an inherently shorter duration, not only because they have a shorter term, but those borrowers tend to pay off more quickly as well, for a variety of reasons. As such, they perform more similarly to shorter-end Treasury securities–not quite 2-3yr short, but closer to 5’s whereas 30yr MBS are closer to 10s.”
Matthew Graham : “if clients want to know why, I’d focus on the Fed’s rate hike outlook combined with Treasury issuance outlook. Both put pressure on shorter-term rates before longer term rates.”
Matthew Graham : “specifically, short term rates have been getting closer to long term rates”
Matthew Graham : “Easiest explanation is the flattening of yield curve. What Does a Steeper Curve or Flatter Curve Mean?“
Tom Bartlett : “I noticed the 20 yr. was cheaper than the 15 yr the other day for the same rate which was fishy.”
David Gaffin : “Hi Everyone, Is everyone seeing a big tightening in rate between the 15 yr and 30 year rates? Seems like it used to be .5% difference, now about a .25%. If so, any explanation?”