As expected, this morning's European Central Bank (ECB) Announcement has been a source of volatility for markets, but its effects have varied widely.  Most markets ended up rallying.  Nowhere is that more true than in European bond markets.  Stocks and oil also got a boost.  Treasuries, however, are stuck somewhere in between--pulled lower by falling Bund yields and higher by rising stocks and oil.

2015-10-22 Caught in The Middle

Of course, Treasuries have some of their own reasons for being cautious here as well.  After a quiet day yesterday, corporate debt issuance has picked up in a major way--most notably with a big deal in the pipeline from Coca-Cola. 

What's coke got to do with MBS and Treasuries?  When a big corporation issues debt, it's akin to the US Treasury issuing debt.  Investors put up the cash to own the bonds.  Increased supply elsewhere detracts some of the buying demand that would otherwise be seen in Treasuries and MB.  Additionally, the corporate issuance process often relies on the sales of Treasuries to protect against rising rates between the time the bond is conceived and delivered.

Because of that Treasury-specific hedging process, corporate issuance is less of a problem for MBS.  As such, it's not too surprising to see MBS in modestly positive territory while Treasuries are slightly weaker on the day.  The caveat is that shorter-maturity Treasuries are also barely holding on to gains--potentially a factor of Treasury announcing that the upcoming 2-yr auction would be delayed (debt-ceiling political posturing).


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
101-22 : +0-01
FNMA 3.5
104-19 : +0-02
FNMA 4.0
106-27 : +0-02
Treasuries
2 YR
0.6050 : -0.0200
10 YR
2.0420 : +0.0140
30 YR
2.8810 : +0.0130
Pricing as of 10/22/15 12:22PMEST

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9:57AM  :  Bond Markets Near Unchanged After Draghi; MBS Outperforming

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Dustin McAlister  :  "chase"
Oliver Orlicki  :  "US BAnk"
Jon Sanders  :  "Who other than United Wholesale offers interest only mortgages?"
Matthew Graham  :  "Bunds dropped from .58 to .53 instantly "
Matthew Graham  :  "doubts about ECB QE potency and follow-through"
Matthew Graham  :  "that's sorta what the Bund sell-off was about on Tuesday"
Matthew Graham  :  "RTRS - DRAGHI SAYS TO FULLY IMPLEMENT MONTHLY ASSET PURCHASES OF EUR 60 BLN"
Matthew Graham  :  "RTRS - US JOBLESS CLAIMS ROSE TO 259,000 OCT 17 WEEK (CONSENSUS 265,000) FROM 256,000 PRIOR WEEK (PREVIOUS 255,000)"
Matthew Graham  :  "RTRS - ECB SAYS EM CONCERNS AND COMMODITIES CONCERNS SIGNAL DOWNSIDE RISK FOR INFLATION"