Treasuries Still Pricing In Some Uncertainty; MBS Underperform.
Bonds had a volatile trading day as markets reacted to over-the-weekend news of Russia’s pre-annexation of Ukraine. Yields rose sharply into the domestic session, but recovered fully by 2pm ET. At least that’s the case for longer-dated yields, which is where we’d expect to see more of an uncertainty premium to account for the risk of additional geopolitical drama. Short term debt continues to suffer in tandem with the Fed rate hike outlook. Seeing as how MBS are shorter in duration than 10yr Treasuries (and probably 5’s too at this point) are unsurprisingly underperforming. It doesn’t help that Fed policy normalization has an outsized impact on MBS as well.
Econ Data / Events
Fed MBS Buying 10am, 11:30am, 1pm
Philly Fed Services Index….. 15.9 vs -16.2 previously FHFA Home Prices …………..17.6 vs 17.5 prev Case Shiller Home Prices….. 18.6 vs 18.0 prev Consumer Confidence ………110.5 vs 110.0 f’cast, 111.1 prev
Market Movement Recap
08:32 AM Bonds and stocks surged lower early in the overnight session on Ukraine invasion headlines. Both have since bounced back. 10yr yields up 1.5bps to 1.942. UMBS 3.0 coupons are down 5 ticks (.16) at 100-12 (100.375).
12:03 PM MBS are very slightly weaker from opening levels, now down 6 ticks (.19) at 100-11 (100.34). 10yr yields are still up 1.5bps at 1.942 after some in-range volatility.
03:55 PM Some weakness into the 3pm close following US sanctions on Russia. Treasuries have fully recovered to unchanged levels, but MBS are still 6 ticks (.19) weaker on the day.