NEW YORK: Mortgage-backed securities (MBS) open up as tame as the rest of the markets as prices are generally flat, and perfectly in line to meandering Treasuries.
MBS has seen a decent slew of trading flows predominated by buying, post-FOMC, as the prospect of continued lower interest rates (borrowing costs) has been music to investor's ears (read positive carry trades).
Sentiment has been building steadily that the upper coupon stack (5.5s and higher) has enjoyed a lengthy run and is now overbought, leading many migrating lower in coupon as a result.
Yesterday's rates rally was the perfect prescription to lead buyers back down the coupon stack as lower yields required longer duration plays.
Lower coupons finished three to 4 ticks tighter to 10yr notes, as upper coupons languished against the weight of profit taking from relative value players.
Supply weighed in near $2 billion, as the combination of Originations and Treasury MBS unwinds was barely enough to satiate demand.
Today's batch of data and month end may further empower the basis as "down in coupon" is set as long as the lower rates range holds.
Overnight, stocks were mostly unchanged as both London and Tokyo enjoyed holidays while the rest of the world's markets look tame.
U.S. Treasuries moved only a tick or so as the 10year note yield hovers the low 3.30 area, as the slope of the 2s/10s curve remains just below +270.
One month U.S. Libor (MBS roll funding) was last seen at 0.21025, and yesterday's Daily Fed Funds Effective Rate was last observed at 0.09 (Low 0.05, high 3/8th percent) with 3 basis points of standard deviation (Target Rate remains fixed at a range of zero to 25bps).
Currently, the 30year coupon stack (FNMAs, GNMAs, and FHLMCs) is higher a plus up two ticks (a plus being one half 32nds, a tick a full 32nd of 1 point), as lower coupons a slight edge to fuller ones.
15yrs maturities (FNMA Dwarfs and FHLMC Nuggets) are seen improved a tick to two ticks over Thursday's 3pm marks, as treasuries inch higher, swaps are moderately wider, and Vols hold lower (3m10y off two bps on the week).
MBS spreads commence domestic operations on this last trading day of the week a plus to three quarters of one tick wider to 10year notes, a plus back from 5s, and the same deficit seen versus swaps.
15/30 swaps have had a poor week, falling four to 5/32nds against longer durations and they start out adhering to those lower levels this morning as the "bottom" swap (Dwarf 3.5s against 30yr FNMA 4s) reads 1-24+ bid.
Off the runs, or OTRs (30yr GNMAs and 30yr FHLMCs) had a modest run on Thursday, as GN/FN swaps saw good CMO deal bids against limited Originator supply while gaining a plus tick.
FG/FNs fell back on increased supply however in FHLMCs, with prepays the next spread convergence frontier up next week.
Lastly, 30yr inter-coupon swaps, a measure of duration plays within 30yr maturities, compressed or lowered a tick to 2/32nds as higher prices and lower rates deemed moves lower in coupon a worthy exercise with the lower benchmark 4.5/4 swap falling to 3-10 context from 3-12.
The economic calendar winds up a hectic week with a flurry of releases initiated by Personal Income for March at 8:30am; headline print seen +0.4 vs. +0.3 (last), PC expenditure lower
+0.5 vs. +0.7 (prior), and Core PCE deflator also lower (+0.1 vs. +0.2).
Employment costs index for Q1 comes out as well, seen slightly higher to +0.5 vs. +0.4. At 9:45am, Chicago PMI
(April) looks a bit lower to 68.2 (from 70.6), while 10 minutes later University of Michigan survey (April final) is seen modestly higher to 70.0 from 69.6. The month end auctions are complete but, there is a smattering of Fed Speak as St. Louis
Fed President Bullard (non-voter) is at the Fed's Community Affairs Research Conference in Arlington, Virginia at 8:40am while Fed Chairman Bernanke talks at the same venue four hours later (give or take 10 minutes-take).
Comments
Comments are closed for this article.