Have you heard much about Actavis before today? 

Me neither, but that sure changed quickly!  Actavis is a big pharmaceutical company that announced it would buy Allergan back in Nov for around $66 bln.  As is sometimes the case with these big buyouts, the buying firm needs to raise cash for the deal.  Actavis did this in a big way today--much bigger than the street was expecting.  It actually ended up being the 2nd biggest corporate bond deal ever.  To put it in perspective, the last corporate deals that made waves were Apple and Microsoft (those tiny little companies...) at $6.5 and $10.75 bln respectively.

While the Actavis deal didn't come close to the epic Verizon bond offering ($47 bln), it crushed the runners up as it was last reported to be in the neighborhood of $27 bln. 

That's a lot of debt hitting the market at the same time, and a lot of investors wanted it.  There were roughly 3 dollars of bidding interest on the books for every dollar available.  So yeah... that saps some demand from other sectors of the bond market in and of itself.  On top of that, keep in mind that corporate debt is frequently hedged via instruments that effectively sell Treasuries.  Treasury yields form the basis for most corporate bond pricing, so selling Treasuries is just another way of locking the rate (the same way a new mortgage lock implies MBS selling).

The double whammy above (competing supply and rate-lock selling) accounts for the lion's share of today's weakness, but there was also an asset allocation trade in the works.  That's a fancy way of saying traders were selling bonds to buy stocks.  It became painfully obvious that these factors were driving the market right after the 10am ISM data.  The data was poor, but bonds sold aggressively. 

The takeaway is that traders were chomping at the bit to sell bonds, but were waiting to make sure that ISM wouldn't set them up for a huge 'pain trade' (read: being on the wrong side of the market) as ISM is one of those few reports where a big enough miss can actually trump anything else in play.  As you probably guessed, today's miss wasn't one of those...


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
101-17 : -0-12
FNMA 3.5
104-17 : -0-10
FNMA 4.0
106-24 : -0-07
Treasuries
2 YR
0.6620 : +0.0400
10 YR
2.0890 : +0.0925
30 YR
2.6860 : +0.0926
Pricing as of 3/2/15 5:34PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:57PM  :  ALERT ISSUED: Ongoing Negative Reprice Risk
11:51AM  :  ALERT ISSUED: If you Haven't Seen a Reprice Yet, You Probably Will
10:56AM  :  ALERT ISSUED: Another Incremental Increase in Negative Reprice Risk
10:19AM  :  ALERT ISSUED: Paradoxical Reactions Continue as Bonds Weaken on Crummy ISM Numbers
9:34AM  :  Slightly Weaker After Morning Shuffle, but Finding Support

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Bryce Schetselaar  :  "The swings lately have been brutal"
Nathan Miller  :  "I had 8 low values in Feb, fortunately was able to restructure all but 2 of them"
Matt Hodges  :  "chip - i have 4 refis coming in low, every one of them supported by a Realtor providing comps which appraisers rejectec"
Bryce Schetselaar  :  "I have seen that here, too Chip. Last 2 condo deals have come in $10k below purchase"
Chip Harris  :  "Very disturbing trend here. Last four purchases have come in with appraised value significantly below the purchase price."
Hugh W. Page  :  "Not that long ago I would never have thought to consider Tradeflows and Corp Debt Issuance on the list of things to worry about. The more MG knowledge I soak in here the more I realize how little I used to know and still need to learn!"
Matthew Graham  :  "I don't think today has anything to do with rate hike expectations. "
Victor Burek  :  "what has me even more confused, if bond traders were setting up for a earlier rate hike, the short end should be selling off more"