- Bond markets began in slightly weaker territory and kept losing ground
- Most of the losses were in by 10am as corporate issuance became the trade of the day
- This affects Treasuries much more than MBS, although MBS still lost a fair amount of ground
Today was all about corporate issuance for bond markets. Economic data, oil prices, stock prices... None of it mattered next to the roughly $20 bln in new corporate bonds.
The easiest way to think about the role of corporate bonds with respect to the mortgage market is that corporate bonds are just another seller the same marketplace where originators are trying to sell their MBS. A greater supply of bonds means lower prices for all bonds, all things being equal.
In addition to the supply consideration, corporate bonds also directly affect Treasuries. This has to do with how corporate bonds are priced. Specifically, a 10yr corporate bond, for instance, is typically based on 10yr Treasury yields plus a margin that reflects the creditworthiness of the corporation. As such, selling Treasuries takes on a very similar role in the corporate bond world as does selling MBS in the mortgage world as part of the rate lock and/or hedging process. Long story short, there is direct selling pressure on Treasuries when corporate issuance ramps up--a fact that's reflected in 10yr yields being up 5.5bps today while the implication is only 1-3bps in terms of mortgage rates.
MBS | FNMA 3.0 102-19 : -0-06 | ||
Treasuries | 10 YR 1.7570 : +0.0520 | ||
Pricing as of 5/16/16 5:19PMEST |