MBS MID-DAY: Near Unchanged Levels After ECB; Afternoon Not Without Risks


This morning’s main event was the post-announcement press conference with ECB (European Central Bank) President Mario Draghi.  It made for some volatility in both directions which has now mostly cancelled itself out.  This is especially true for MBS, which are essentially unchanged on the day while Treasuries remain a bit weaker. 

Treasuries are taking a bit of an incremental hit from an active corporate bond market, which implies that big accounts have sold or will sell Treasuries as a part of the corporate bond issuance process.  Next week’s “quarterly refunding” (a new batch of longer-dated Treasuries) also creates a bit of defensiveness as these auctions are seen as less predictable than the “reopening” auctions which occur on the other 8 months of the year.  As the name implies, reopenings are simply 2nd and 3rd chances to bid on the Treasury coupons created at the quarterly refunding auctions.

As for the rest of today, European equities markets are closed and EU bond markets are nearly closed.  Volatility has been minimal since the ECB press conference ended, but US bond markets seem willing to take cues from stocks to some extent.  That leaves the door open for pressure into the afternoon.  Holding under 2.38% in 10yr yields would be a solid, uneventful showing ahead of tomorrow’s NFP.

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