Good Morning. Happy Lebron James signing day! The word on the street (ESPN) is BronBron is leaning toward a new contract with the Miami Heat. I'll believe it when I see it.
Stocks are apathetically maintaining recent positive progress. Regardless of a lack of investor participation and generally mixed reads on price action, rising stock valuations are pushing benchmark rates higher, especially in the overbought long end of the yield curve (rate sheet influential).
The August delivery Fannie Mae 4.0 MBS coupon is -0-02 at 101-01. The August delivery Fannie Mae 4.5 MBS coupon is -0-01 at 103-12. The secondary market current coupon is 1.2 basis points higher at 3.82%. Yield spreads are tighter vs. TSYs and swaps.
REMEMBER PAR LOAN PRICING IS THE MOST SENSITIVE TO FALLING MBS PRICES!
The 10yr TSY note has broken range support and is trading back in the 3.00% handle, currently -0-14 at 103-29 yielding 3.036% (+5.2bps). The 2s/10s curve is 5 basis points steeper at 240bps.
Stocks are holding onto yesterday's positive progress. S&P futures are +3.00 at 1062.25. Profit taking has been seen since S&Ps broke 1050, trading volume is low, and open interest has fallen...this is not indicative of a committed equity market.
We need to see more definitive price action before we can jump to any conclusions, but I would be defensive with short term locks, especially on deals quoted in the 4.25 to 4.625 range.
We get Treasury supply at 11am. The market is expecting $35 billion 3s, $21 billion 10s, and $13 billion 30 year bonds. Besides a modest reversal in stocks, upcoming Treasury auctions and a generally overbought yield curve are likely weighing on benchmark debt valuations this morning.
UPDATED AT 11AM: Treasury will auction $35 billion 3s on Monday, $21 billion 10s on Tuesday, and $13 billion 30yr bonds on Wednesday