MBS RECAP: New week, new weakness
The new week wasted very little time reinforcing the realities of 2021. This is a rising interest rate environment for the time being, and any rapid correction to lower interest rates will require some serious motivation. This motivation could take several forms, and when we speak of a temporary and moderate correction, it could be as simple as passing Tradeflows from March to April (or Q1 to Q2). There are still a few days to go, and today was quickly overwhelmed by corporate bond issuance and additional sales related to the portfolio allocation for the end of the first quarter.
Market Movement Review
Modestly stronger during the first part of the overnight session. Quick but moderate selling pressure just before 4am, led by EU bonds. Treasuries gradually rebounded from previous gains and started the domestic session down 3 basis points at 1.643. 2.5 UMBS have risen by more than an eighth of a point.
Noticeable weakness at 9:30 am ET NYSE Open. 10 years now gives 2 basis points at 1.696. UMBS 2.5 coupons drop 1 tick (0.03) at 102-22 (102.69). Some rumors about the leaked internal White House proposal for $ 3 trillion in new spending and $ 1 trillion in tax hikes (although the latter is helping bonds).
The returns for the day rose 3 basis points to 1.703%. Corporate bond issuance continues to grow during the week, adding to the pressure. With 2.5 coupons, MBS only surpassed 3 ticks (.09).
More losses in the last hour as MBS is now more involved. Lowest daily prices for UMBS 2.5 (minus 6 ticks or .19). Traders cite corporate issues and portfolio reallocations as motivations.
Modest recovery after 3pm but too little and too late to change the tone of the day. Even then, at 1.71%, 10-year yields are still up 3.6 basis points and 2.5 UMBS are still down nearly an eighth.
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