(9:20am) The markets are like a set of interconnected gears and cogs at the moment with one central cog noticeably driving the rest: Oil. The stock market is the most immediately connected cog in the machine and simply due to all the recent talk about the stock lever, oil's ultimate impact on bonds can be assumed. So it's not necessarily that the shape of trading in bonds is going to exactly match oil, but through a few degrees of separation of various size cogs, OIL is the central cog that's driving the rest of the machine, even if the bond cog moves in a slightly different way. This trickle down effect is pushing yields higher at the moment as oil prices recently spiked. Bonds followed shortly thereafter and 10yr yields have pushed up to 3.523. FNCL 4.5's are now at 101-26, unchanged on the day, and on the very edge of the positive trendline mentioned yesterday as connecting a series of recent lows. In that sense, it would be convenient for the development of that trend were we to hold 101-26 for now. If we don't, it could be the earliest of early indicators of potential reprice risk for lenders who are already out with pricing.

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Here are a few charts illustrating the connectivity between oil, stocks, and bonds.  It's not that oil is always going to move in the exact same proportion to the other markets, but as AQ said this morning, oil is the "machine" that's driving everything else. "Stocks and bonds continue to march to the beat of an oil drum."

On the chart below it looks like oil and stocks are moving in the same direction,  but I inverted the y-axis for stocks to illustrate inter-connectivity. So as stocks appear to go up on the chart, they are really going down.

Then of course, there's the stock lever and its impact on bonds. Below is a chart of benchmark 10-year yields and S&P futures. No inversion here. When stocks go up, TSY yields go up (that means TSY prices are falling).

 

And finally, here's how MBS have responded, as well as a glance at the rest of the MBS coupon stack and Treasuries. Our CC marks: +1.5bps at 4.212%. +68/10yT, +58/10yIRS, +200/5yT.

Some lenders have delayed the release of rate sheets, others have already recalled. Overall...loan pricing is a bit worse today.