Bond Markets Disappointingly Flat After NFP, MBS Outperforming


Today had such good potential as far as market-movers go…  Not only did we have The Employment Situation Report–always the most important piece of domestic economic data each month–but we also got the official tally from Greece’s private sector bond swap earlier this morning (85% acquiesced, 95% if Greece invokes collective action clauses, aka “CACs”).  These were the two biggest considerations for markets this week, and really, the biggest considerations since the Greek parliament passed the austerity measures required to progress their bailout several weeks ago.

Yet markets couldn’t be any less convicted with these events in the rearview.  Certainly, there’s still the matter of deciding whether or not Greece will activate CACs as well as the verdict on whether or not that would trigger CDS payouts, but even without those things yet determined, we still would have expected more reaction on this Friday.  Here’s the most recent alert from the MBS Live Dashboard with some charts and additional comments added.

MBS Continue Outperforming. Several Positive Reprices Reported -1:17PM – The post-NFP trading continues to be about as uneventful and disappointing as it gets… Fortunately, that’s just the way MBS likes it and Fannie 3.5’s continue to trade in a tight range, several ticks improved from yesterday’s latest levels (keep in mind, that refers to “latest levels in April coupons, which went out at 103-03), currently up 4 ticks at 103-07. 

As for the “uneventful and disappointing,” we note the utter lack of conviction that continues to dominate Treasury trading. It’s not that we’d want higher mortgage rates, but it is disappointing to see that 10yr yields are still unwilling to break higher than their March 1st highs even after the combined impact of the Greek bond swap and today’s NFP. What’s the point of economic data and ostensibly important headlines if markets aren’t going to do anything with them anyway? 

Even volume is much lower than normal for NFP Friday’s, yet another symptom of a disturbingly quiet and noncommittal bond market. It’s scary because past precedent has groomed us to expect a big move in one direction or another following such bouts of tenaciously sideways price action. So we’re left wondering–uncomfortably–are things different this time? The fact that we can answer “yeah… probably they’re different” feels like scarcely enough to extinguish the instinctive anxiety that heretofore, has served to protect the savvy market watcher from being caught on the wrong side of bigger moves. 

(chart above: Treasuries keep threatening to break the long term downtrend and/or the 100 day moving average, seemingly with the new uptrend seen in the teal lines, but haven’t followed through.  chart below: even stocks shyed away from breaking recent technical boundaries marked by highs in early March)

The compensation for this increased blood pressure is some moderate outperformance by MBS, which tend to appreciate stability in benchmarks such as 10yr yields. So we’ll take the small victories when we can. Case in point: a few reprices have already been reported, and further gains in MBS, or even simply more time spent holding current levels, could result in a few more this afternoon. 

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