The Treasury market saw above average volume across the curve (all maturities) as investors took an opportunity to do some bargain buying (cheap dollar prices). Shorter maturities saw better buying most of the day while 7yr and 10 yr flows favored sellers until afternoon trading. By day's end the 10 yr had rallied a full point to a yield of 3.61%...14bps lower than yesterdays intraday high of 3.75%. The yield curve, as measured by 2s vs. 10s, was 3bps flatter to 269bps at the close. Yesterday's selling appears to have been a bit overblown...slight correction today.
The 7 yr note auction saw slightly weaker demand than one might have expected considering how cheap it was vs. the February issuance (doesn't street need to add cheap duration for month end index extension?). On the other hand when you take a step back and look at the duration shedding "event" that took place yesterday and the corresponding clean up taking place today...the turnout wasn't all that bad. Unfortunately there wasn't enough demand to spark a cross market rally in MBS world.
Bid to cover was 2.26 vs. 2.11 at Feb.26 reopening (total tendered/ total accepted). This implies there were 2.26 bids tendered for every 1 accepted by the Treasury. Indirects bid $10.847bn (red) and were awarded $8.569bn (blue) which equates to 32.98% of the issuance...spot on vs. Feb. auction. The high yield was 3.30% with 78.32% of the issuance allotted at that yield. ith this week's debt dump behind us...we look forward to 3s/10s/30s in mid June. All in all the TSY raised $82bn this week.
The bargain buying spread into the MBS market too. Early in the session there was heavy trading activity after prices rallied and MBS/TSY yield spreads tightened...some accounts even speculatively ventured back into the now "deeply discounted" 4.0 coupon. Heading into the 3 pm close "rate sheet influential" coupons continued to strengthen in dollar (price) and relative value terms (yield spreads tighter vs. benchmark TSYs). Some lenders repriced for the worse, some repriced for better, some didnt change rate sheets at all. Lenders are still trying to make sense of where the market is headed...so expect a bit of cushion to be baked into rate sheets.
Here's an intraweek look at the new 4.5 current coupon..
Today is Thursday...that means the Fed releases weekly Agency MBS purchase data. In the trading sessions between May 21 and May 27 the Federal Reserve's Gross Agency MBS Purchases totaled $33.4bn. Sales totaled $7.856bn. Net Agency MBS Purchases amounted to $25.544bn.
23% of net purchases were in 4.0s, 67% in 4.5s, 6% in 5.0s, and 3% in 5.5s (rounded). This week the Fed bought a little more Freddie's....43.36% to be exact. Fannie once again saw the majority of Fed money with 47.30% while overseas supported Ginnie coupons only recieved 10.03%.
The Fed averaged $6.4 billion in net purchases per day, up from $4.9 billion in the previous report. (1 less day)
This brings the total to $507.07bn spent so far. 40.57% of the 1.25 trillion that has been allocated for Agency MBS support. Still not even halfway done yet!
Here is the updated MND Fed MBS chart...
Tomorrow is last trading day of the month....a generally supportive time for MBS. Economic data generates perceptions of "things to come".....
830AM Q1 Preliminary GDP(expecting -5.5% vs. advance read of -6.1%)
945 Chicago PMI
955 Consumer Sentiment
MBS Market Alerts
