Rate Snapshot: MBS, treasuries experience huge moves since Christmas

by MPA06 Jan 2015

By David Shirmeyer, CEO at Sigma Research

Way too much, too quick! The 10 and mortgages have seen huge moves since Christmas eve, the 10 yield has declined frm 2.30% to today’s low at 1.89%. The low today tested the low (almost) on Oct 15th when the yield hit 1.86% then shot higher. We do expect more declines but likely not in the next few sessions. The same can be said about the stock market movement…to rapid and a snap back is likely before additional selling drives the indexes lower. There is a measurement we use, time and price; there has been very little time for the bond market to test the yield at various levels as it fell like a stone. The correlation between time and the movement of price when viewed from short term trade is important; linked with the major movements in the bond market suggests the potential of a rebound. Any bounce though will not change the wider bullish outlook.


All current focus is on Europe and crude oil; the US economic picture hasn’t yet changed although we expect the rosy outlook to lose some luster ion the weeks ahead. Oil too, while it is likely the price will continue lower but currently a little too much selling in my opinion. Usually with moves like these that panic traders and investors become overrun as was the case last Oct. and a reversal normally occurs before the movement regains its breath and the underlying fundamentals confirm the direction. A week ago we said we expect a high level of volatility in Q1, so far we are not disappointed. Trading volatility is a high octane trade; holding on when markets snap back.


Markets will change focus tomorrow; the FOMC minutes frm 12/17 will be released tomorrow, always some meat on the bone when we get details. ADP will report non-farm job growth at 8:15 in the morning setting the tone. Friday the BLS Dec employment data on tap.


For applications that are close to closing it may be best to lock by the end of today; longer time frames can be floated however at these low rates taking the risk may cost a little. The ECB is widely expected to launch a large QE on Jan 22nd; history though isn’t on the bank’s side as most of the QE frm the ECB has fallen short of anticipated results. The 10 at 1.97% is off its low today at 1.89%, the key stock indexes also have come off the lows, the DJIA at one point today down 239. The wider look; as long as global rates are lower than the US treasuries, the US market will continue to work lower. The 10 yr German bund today at 0.45%, Italy 1.86%, Spain 1.61%, Japan 0.29%, UK 1.56%. Investors looking for safety are running, not walking to US bonds.


PRICES @ 4:00 PM

10 yr note:                   +23/32 (72 bp) 1.96% -8 bp

5 yr note:                     +13/32 (41 bp) 1.48% -9 bp

2 Yr note:                    +2/32 (6 bp) 0.63% -4 bp

30 yr bond:                  +65/32 (203 bp) 2.51% -10 bp

Libor Rates:                1 mo 0.168%; 3 mo 0.253%; 6 mo 0.362%; 1 yr 0.633%

30 yr FNMA 3.5 Jan:    105.17 +27 bp (+3 bp frm 9:30) 3.0 coupon 102.60 +53 bp (+11 bp frm 9:30)

15 yr FNMA 3.0 Jan:    104.43 +24 bp (unch frm 9:30)

30 yr GNMA 3.5 Jan:   105.82 +30 bp (+9 bp frm 9:30) 3.0 coupon 103.46 +34 bp (+3 bp frm 9:30)

Dollar/Yen:                 118.66 -0.98 yen

Dollar/Euro:               $1.1898 -$0.0035

Gold:                         $1218.00 +$14.00

Crude Oil:                  $48.16 -$1.88

DJIA:                         17,371.64 -130.01

NASDAQ:                  4592.74 -59.84

S&P 500:                   2002.61 -17.97