• Strong overnight pop in Treasuries, ECB headlines cited
  • Record low 30yr bond yield and near-record low in 10yr yield
  • Bonds lost ground after Europe ran out of steam
  • Bonds lost more ground after ISM data, but held on to modest gains

All in all, today managed to be fairly interesting, considering its status as a "half-day before a 3-day weekend."  The overnight trade was driven by some important headlines out of Europe.  These dealt with the recent rumors that the ECB was considering changing its rules for how much sovereign debt it could buy from any given country.  Under the current system, bond buying is based on the level of contribution that a country has made into the ECB.  In other words, it's proportionate and fair.  

The rumor was that the ECB would consider buying more bonds of certain countries that needed more stimulus in order to benefit the broader Eurozone.  This was good news for the likes of Italy, Portugal and Spain, and bad news for Germany.  When the overnight wires came out refuting the rumors, German yields dropped quickly and brought Treasuries along for the ride.  

The ride stopped at all-time lows for 30yr bonds and essentially all-time lows for 10yr yields as well (1.382 vs 1.381 in 2012).  From there, it was merely a matter of holding on to gains while data and pre-weekend trading chipped away at them.  Data actually appeared to make a dent, with ISM Manufacturing coming in at 53.2 vs 51.4 forecast.  This ALMOST brought bonds back to 'unchanged' levels.  

Consider the preceding statements just one more time: bonds rallied to all-time lows and stronger ISM (a historically big market mover) took us from "very green" to just "slightly green."  Moral of the story: bonds are where they are for reasons that transcend domestic economic data, even though data can continue to add or removed pressure in the short-term and over smaller ranges.

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
103-29 : +0-01
Treasuries
10 YR
1.4560 : -0.0360
Pricing as of 7/1/16 3:50PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:40AM  :  ALERT ISSUED: Some Negative Reprice Risk Already, But Not Widespread
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "emotion>logic"
Sung Kim  :  "so why do people think the rates they are seeing are not what they should be seeing?"
Matthew Graham  :  "FWIW, G-fee change alone has added roughly 0.08% to RATE"
Matthew Graham  :  "pretty easy to do an analysis. Fannie publishes g-fees on its 10q each quarter. We would look a the difference between Q1 2016 and Q3 2012, and then the difference in MBS trading levels, and see how things stack up. You might be surprised at how aggressive rates actually are right now. MBS were almost 2 points higher the last time 3.375% was the most prevalent top tier c30 quote, and that was before TRID did whatever it did to operational costs."
Sung Kim  :  "to be fair, we don't know what current levels should be do we? has anyone done an analysis? please keep in mind, as i un-PC like alluded to last night, a lot of servicers paid up big for MSRs last year and they dont want to get burned again"
Hugh W. Page  :  "Amazing to see the 10 yr yield 1/2 what it started at the beginning of the year."
Steve Chizmadia  :  "And I'd be more than content hanging around these levels as long as secondary would improve their pricing to reflect current levels"