With yesterday offering the first legitimate push back against the recent sell-off, today becomes one of three critically important days in establishing a ceiling for bond yields (or a floor for MBS prices). With Biden announcing stimulus details tomorrow, and Retail Sales on Friday, we wouldn’t expect a bond rally to get too far ahead of itself today (if it does, that would be very telling, in a good way). The goal for bond bulls is simply to avoid slipping back into sell-off mode.
Conventional wisdom suggests weakness is a bigger risk in the hours leading up to the 1pm 30yr bond auction. Trading doesn’t always stick to that script, of course, but the point is this: if yields are rising between 10am and 1pm, we’d want to wait to see what happens after 1pm before concluding all hope is lost. The only exception would be for significant weakness that’s clearly attributable to an obvious, new root cause (unexpected news headline, etc.).
Econ data is innocuous today for a few reasons. The biggest reason is that CPI is already out and there was no reaction. But even then, traders are cool to the notion of panicking over inflation until and unless it’s clearly on the move higher, and that move is corroborated by multiple reports for several months. In separate data, MBA mortgage apps surged (refis highest in 10 months), but this isn’t a market mover as far as bonds are concerned. The slight exception would be that the refi surge speaks to increased MBS issuance–one of the factors driving MBS underperformance in recent days.
Speaking of MBS specific issues, note that the charts on MBS live will not necessarily line up with the price tables. Specifically, the line on the chart might look like it’s right in line with yesterday’s closing prices. You might logically conclude that prices are “unchanged” in that case, but the price table would showing that MBS are +0-04 (or +.125).
This has to do with the roll (the monthly coupon settlement where January coupons cease trading and Feb coupons take over). Feb coupons have always been trading at a lower price than Jan coupons because an investor who buys them will be waiting one additional month before getting their first interest payments. The left side of today’s chart shows Jan coupons and the right side shows Feb. If the left side showed Feb coupons, we’d see that yesterday’s closing prices were indeed an eighth of a point lower than current prices. Learn more here.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
102-26 : +0-05
1.1170 : -0.0210
|Pricing as of 1/13/21 9:26AMEST|
Tomorrow’s Economic Calendar