Risk On or Risk Off?

RISK ON TODAY!

Money is flowing out of bonds and into stocks ahead of the release of the 10-year Treasury note auction results.

S&P futures are just off their highs of the day, currently +15.25 at 1091.75, and the benchmark 10-year note yield is up 3.6bps to 3.103%. I would describe interest rates as reacting "reluctantly" to the stock lever, meaning rates aren't rising as fast as one might expect given the rapid rally in equity markets.

The August Fannie Mae 4.0 MBS coupon is -0-06 at 101-00 and the FN 4.5 is -0-05 at 103-12. The secondary market current coupon is +2.5bps at 3.841%. Yield spreads are wider vs. Treasuries and swaps. Lower price levels and widening yield spreads implies there is localized weakness in the production coupon side of the MBS stack....this was to be expected given their recent run up into record high price territory and ongoing spread tightener, especially after the prepayment report showed speeds generally slower than expected.

NEXT EVENT: 10-year Treasury note auction results at 1pm.

Short term floats are at the most risk right now, especially loans priced near par.