The balance of this week's economic data was unequivocally "not enough" to remove the stench of September tapering from MBS and Treasuries. It was all very mathematical really. Each of the three days with something to offer in terms of econ data (Tue, Thu, Fri) got it's chance to make counterarguments against September tapering. Not only did some of the reports argue FOR September, but those that didn't were fairly wishy-washy about it. For instance, a print of 80.0 is not cutting it as far as raising alarm bells that the economy can't handle higher rates (see chart below). The 'delayed reaction' contingent may end up having a point, but that's precisely why we've been talking about tapering for so long without actually doing it (so rates could rise without any material policy change, giving the Fed a chance to observe the effects of higher rates before further committing to them). Bottom line, no moon shooting this week. No one wants to catch the falling MBS/Treasury knife on a Friday ahead of a potentially thinly staffed week ahead.
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Pricing as of 4:06 PM EST |
That makes the 3pm-5pm hours a bit of wildcard as the program-buying can trigger other stops for the non-HFT players. It could even result in an extension of the gains. Whatever the case, we've now completely unwound the 1pm weakness with 10yr yields back to 2.82 and Fannie 4.0s back up to 102-17 from 102-10 lows (a mere 17 ticks lower on the day). A bold, fast lender might reprice positively here, but most would like to see this hold longer or move into better territory.
Jane: "No."
Casting director tells us that the role of the 'crazy thing' is most likely to be played by a really nasty Friday afternoon sell off, spanning bond and stock markets alike.
10's just broke HIGHER STILL, now up to 2.8619. MBS may be at 102-15 now, but there's no telling where that'll be in a few minutes. With each additional bout of selling, we hope to have seen the last of it, but the trend is the trend until it's not a trend anymore. This is a bad afternoon on a bad month in a bad era for bond markets.
10's are up to 2.8178. Volumes picked up as we crossed into the noon hour. Sellers are getting out ahead of the weekend, and lunch-time is as good a time as any (liquidity is better in the AM hours, so sellers have a better chance of finding a buyer at their price).
Treasuries are definitely leading this second move and MBS are now finally following. Same liquidity dynamics in play. Further weakness is a risk. Negative reprices are a near certainty.