One of the recurring questions on the MBS Live Dashboard today was simply “what’s up with this weakness?” Normally, there would be a logical connection to be drawn between an event on the economic calendar or a headline in the News Stream, but no such luck today.
This morning’s commentary alluded to this in saying that markets wouldn’t have much to go on, and indeed the lack of “overt market movers” ended up being the theme of the day. Several potential suspects:
- Corporate bond market issuance continues to be a bigger-than-normal factor so far in 2014. As firms hedge their issuance in the Treasury market, MBS prices end up experiencing turbulence that can never be directly traced to any other source of causality.
- It’s possible the morning strength represented short-covering–i.e. investors who’d been betting on higher rates being forced or deciding to cover those bets (this can have a modest snowball effect when it gets going)
- Technical resistance. This has been a frequent topic of conversation, especially with respect to the low 104 price levels in Fannie 4.0s and 2.82% in 10yr yields.
Ultimately, looking at the closing price of 103-21 on Fannie 4.0s when we’d previously discussed the range as being 103-16 to 104-02, we can easily conclude that today’s weakness is inconsequential even if it’s fairly big compared to yesterday. The bigger concern would be if it continues. It may do that, but any movement is likely to be more subdued until we hear from the Fed next week.