MBS RECAP: Bond Markets Bounce Back after 30yr Auction

The 30yr Bond auction came in at 3.758 vs 3.782 expectations. Demand was 2.64 dollars bid for each dollar offered. That figure has recently been as low as 2.11 and several recent auctions have been in the 2.2-2.5 range. Bottom line, the results were strong.

The only possible counterpoint to the positivity is that bond markets have been selling off slowly since October 3rd, and more aggressively over the past few days. If these same auction results had arrived yesterday, they would have been negative for bond markets.

With that in mind, the reaction is logical so far. We’ve improved from where we were just before the auction, but haven’t cracked into yesterday’s trading ranges. Unfortunately, this may do more to confirm yesterday’s weakness than to hearken a shift in momentum that takes us back into the range. For now, however, it’s positive for prices, and if the post-auction gains hold current levels, positive reprices aren’t out of the question.

Fannie 3.5s are currently down 6 ticks on the day, but up 4 ticks from pre-auction levels. 10yr yields fell 2 bps after the auction to 2.694 initially, but are back up to 2.703 currently, considering their next move.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/327430.aspx

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