MBS suffered, somewhat, from supply/demand issues immediately following the Fed’s 11:30-11:50am buying operation today. Prices rebounded by the close and were never catastrophically lower in the first place. With the exception of a surprise stimulus headline or a huge departure from expectations in Retail Sales tomorrow morning, focus now shifts squarely to tomorrow’s Fed announcement. What’s at stake? The Fed may or may not adjust the weighted-average maturity (WAM) of its bond buying portfolio. If they do, it would likely give Treasuries a friendly boost. Vice versa if they don’t. MBS would see a smaller version of the Treasury move in either case.
Econ Data / Events
20min of Fed 30yr UMBS Buying 10am, 1130am (M-F) and 1pm (T-Th)
NY Fed Manufacturing 4.9 vs 6.9 f’cast, 6.3 prev
Import Prices 0.1 v 0.3 f’cast, -0.1 prev
Market Movement Recap
Bonds were modestly stronger to start the overnight session and then weakened slightly during European hours. There wasn’t enough movement in either direction to justify a search for market movers. Same story post-econ data just now. 10yr yield is up half a bp at .903 and UMBS 1.5s are down 2 ticks (0.06) at 100-28 (100.875).
Modest amount of MBS-specific weakness + modest amount of illiquidity = a moderate but fairly abrupt drop in MBS prices. Treasuries haven’t experienced similar weakness because there’s no broad market mover in play. Rather, MBS weakness is almost certainly a result of the Fed’s most recent buying operation (which ended right when the weakness began, and which likely favored MBS 1.5 coupons over 2.0s).
Losses accelerated heading into the 2pm hour as Treasuries joined in the bond-selling spree. 10yr yields were as high as .925 and 1.5 UMBS were as much as a quarter of a point lower on the day. They’ve since recovered an eighth of a point.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
103-18 : -0-03
0.9110 : +0.0200
|Pricing as of 12/15/20 4:57PMEST|
Today’s Reprice Alerts and Updates
2:02PM : ALERT ISSUED: Negative Reprice Risk Increasing
12:17PM : ALERT ISSUED: Negative Reprice Risk Increasing
9:04AM : Bonds Modestly Weaker Following Vaccine Headlines