MBS MID-DAY: Bond Markets Surge on French Credit Rating Downgrade

MBS are showing their underperformance on the week despite a post-data rally this morning. Fannie 3.5’s are up 4 ticks higher at the moment at 103-06, but 10’s rallied at a bit of a healthier clip, down 3.8bps on the morning to 1.8879. This after being as high as 1.94% in the overnight session, but rallying back to 1.90 by the open on news that Italy’s 3yr auction met with only a 1.28 bid-to-cover.

Of the two economic reports released this morning, Import/Export prices was a relative non-event. That leaves the International Trade report as the bigger mover, due to its implications on GDP. If that sounds like not much of a motivation for 10’s to be down 4+ bps, keep in mind that most of the movement was seen before the data. Additionally, Treasury traders seemed to be the first to “figure it out” regarding Int. Trade implications and now that equities futures are following suit to a greater extent, bonds are getting more comfortable at the week’s lows.

MBS, however, are not at their best levels of the week, as they’ve been in the process of reversing an aggressive tightening trend that took Fannie 30 yr current coupons to their lowest yields vs 10yr Treasuries since early August. Even so, MBS are “along for the ride” with Treasuries enough to be well into the green, with positive rate sheet implications for lenders who price before 9:55am Consumer Sentiment (and those who price after, for that matter, as long as the report doesn’t cause a massive reversal, which would be a tall order without help from something else).

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/243211.aspx

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