The economic recovery/contraction TUG OF WAR continues!!!
This morning the Federal Reserve reported that Industrial production decreased at a rate of 0.5% in April after having fallen 1.7% in March. Economist surveyed were expecting industrial production to fall at a rate of 0.6%...so although only slightly better than expectations the report held no tape bombs and offered up an optimistic forward looking outlook (stocks still slightly lower...indecisive marketplace!!!!)
Helping to partially offsetting the unfriendly fixed income data was the release of the Treasury International Capital report. Treasury International Capital data revealed that net foreign purchases of long term US Treasury securities were $56.4 bn in March following $21.55bn net demand side support in February. Overall net inflows were $23.2bn after foreign buyers withdrew a net of $91.1bn in February. Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $26.7 billion. Foreign holdings of Treasury bills increased $47.9 billion. China's increased its holdings from $744.2bn in February to $767.9bn in March. Japan's US debt portfolio holdings grew by $24.8bn from $661.9bn in February to $686.7bn in March.
The US will have to lead the world out of recession...funds flowing back into the United States reiterates the global support for the US recovery efforts...despite the low yields.
Data releases behind us...both TSYs and MBS remain range bound. The 10yr TSY note yield has crossed over its short term 3.13% resistance and is now insistently testing its longer term 3.15% overhead resistance level.
Production MBS coupons have given back yesterday's intraday gains. The FN 4.0 has returned from its recent passage into par territory while the FN 4.5 is seeing a little more interest helping it hover around the all important originator profit taking 102-00 price level. Trading flows (buying and selling) are quiet and demand side support is light. Fed buying has been muted this AM as there is little supply and TSY selling has removed the need for Fed buying to ward off wider spreads. The FN 4.0 range is centered around 100-00...anything too far above and par exerts inertia on bids...anything below 100-00 and bargain buying takes effect helping yield spreads stay stable.
BEWARE: the sluggish Friday trading environment has the potential to magnify any market shifts...this implies there is a higher possibility of big price swings...dont panic in the event this occurs! We will alert if a broad based sentiment shift selloff occurs....RANGE BOUND RANGE BOUND RANGE BOUND......RING THE REGISTER!!!
Since 5pm "Going Out" Marks....
FN30________________________________
FN 4.0 -------->>>> -0-04 to 100-04 from 100-08
FN 4.5 -------->>>> -0-02 to 101-30 from 102-00
FN 5.0 -------->>>> -0-02 to 102-30 from 103-00
FN 5.5 -------->>>> -0-01 to 103-22 from 103-23
FN 6.0 -------->>>> -0-01 to 104-25 from 104-26
GN30________________________________
GN 4.0 -------->>>> -0-05 to 100-04 from 100-09
GN 4.5 -------->>>> -0-02 to 102-02 from 102-04
GN 5.0 -------->>>> -0-01 to 103-23 from 103-24
GN 5.5 -------->>>> -0-01 to 104-04 from 104-05
GN 6.0 -------->>>> -0-02 to 104-21 from 104-23
UST10YR: 3.138%
2s/10s: 228.13 bps <-- UGH....STEEPER
Yesterday the New York Federal Reserve reported that their investment managers bought $35.575bn Agency MBS and sold $8.425bn Agency MBS between May 7 and May 13. Net purchases totaled $27.150bn. 25.4% were 4.0s, 64.6% were 4.5s, 5.6% were 5.0s...the rest was scattered between 5.5s and 15 yr 4.0s. FNMA continues to recieve the lionshare of support...81.2% of the purchases were Fannie coupons, 17.3% Freddie, and 8.5% in the overseas account enjoyed GNMA coupons. Here is the visual breakdown...
Rate sheets are mixed...some investors actually cushioned this mornings fall by passing through some of yesterdays intraday MBS gains. If MBS bids continue to move off their early morning lows...more investors may decide to pass through yesterday's gains. Float til the end of the day in hopes of better rate sheets...but keep your eyes peeled for REPRICE FOR WORSE alerts and dont let you finger stray far from the "SUBMIT LOCK" button.
MBS Market Alerts
