MBS MID-DAY: Best Levels since December 3rd


Less than 24 hours after trading patterns suggested a risk that bond markets were confirming a bounce against their best levels of the month, those levels have now been broken.  In other words, yesterday’s weakness reinforced the floor at 2.82% in 10yr yields, but today’s mix of data and events brought the jack-hammer.


First, and perhaps most important is the fact that today has been the first real day of trading so far this week.  At the noon hour, we’re already well past volume tallies from any previous day.  In fact, it’s the most active session since NFP day.

The stock lever is helping as SP’s are down a relatively staggering 20 points from yesterday’s latest levels, with at least half of that happening since the cash open at 9:30am.  Bond yields and stock prices have been HIGHLY correlated.

Economic data has been supportive at home and abroad.  Chinese manufacturing data helped get the overnight session off to a positive start and the domestic data has erred on the weak side this morning. 

As far as the domestic data is concerned, forget the headlines!  It was unequivocally bound to be the case that Existing Home Sales would come in at the best annual levels in 7 years simply due to the last 11 months.  What’s important is that December is now the second month in a row with a negative year-over-year trend, after more than 3 years spent trending positively. 

Jobless Claims was similarly deceptive as the 326k vs 326k forecast looks like no big deal.  But the Continued Claims figures remained over 3 million.  This was a big factor in last Thursday’s bond market strength, but until today, it could have been an outlying piece of data.  Now the gloominess has more confirmation.

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