MBS RECAP: Weaker Trend Intact after Retail Sales and Yellen Testimony

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Gain access to the most accurate real-time back month TBA indications from Thomson Reuters and Tradeweb. LEARN MORE MBS RECAP: Weaker Trend Intact after Retail Sales and Yellen Testimony

As far as today's market movers are concerned, Retail Sales was dwarfed by Yellen, but most of the reaction to Yellen cancelled itself out.  In other words, Retail Sales accounted for the only decisive push into weaker territory this morning.  Yellen accounted for bigger moves but deposited trading levels right where they had been after Retail Sales.

The damage was anything but severe with Fannie 3.5s not even down an eighth at the moment and 10yr yields up less than a bp.  That said, yesterday was more decisively weak and today's more active session now acts as a sort of confirmation of that weakness. 

This keeps the pressure on bond markets from a technical standpoint in that the possibility of a reversal back to the higher end of the rate range is still alive.  The saving grace was that 10yr yields bounced nicely at 2.57, which is not only a well-traveled inflection point, but also the mid-point for a few technical studies.  Bottom line, staying under 2.57 keeps hope alive.

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live. Pricing as of 7/15/14 4:42PMEST Today's Reprice Alerts and Updates 4:06PM  :  Ongoing Weakness Heading Into Last Hour; MBS Still Off Lows 11:27AM  :  Holding Ground/Moderate Bounce; Reprice Risk Pulling Back 11:01AM  :  ALERT ISSUED: Negative Reprice Risk is Increasing 10:33AM  :  ALERT ISSUED: Back Into Weaker Territory as Yellen Q&A Begins; Lows of the Day 10:07AM  :  Back in Positive Territory As Yellen Testimony Begins 8:45AM  :  Bond Markets Weaker After Retail Sales Matthew Graham  :  "depends what you're wanting your boundaries to represent. Definitely 2.66 is important on the high end. On the bullish side, there are more choices. 2.47 and 2.40 are long-term and fairly epic. But some people look at 2.47-2.51 as "2.5" and call it good. In general, it's hard to argue with that stance as trading has been compartmentalized between 3.0 and 2.5 for the most part since mid 2013" Andrew Haynes  :  "im looking at a long term range of 2.43-2.65 and short term of 2.61-2.51 does that sound about right MG?" Michael Mitchell  :  "Hey Guys- What Lender (Retail, correspondent, Wholesale) is still doing Interest only on Jumbo?" Andy Pada, Jr.  :  "i read something like 66%" Christopher Stevens  :  "anyone know Chase drop in mtg business year over year" Discuss the MBS and Mortgage Markets on Our Streaming Dashboard

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MBS Day Ahead: Yellen Testimony, Retail Sales, and Housing Data

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Last week was a dud in terms of scheduled events.  This week isn't the polar opposite, but it's much more active.  Monday and Friday are the only days without at least a few interesting items on tap. 

That said, merely knowing that there's a good amount of data on tap doesn't do much to suggest what will move markets.  We've seen more than our fair share of rates moving in the opposite direction from what the data seems to suggest in 2014.  That makes it hard to look ahead to particular events and say things like "if this report is strong, rates should rise."  Indeed, that hasn't been a safe way to assess the road ahead recently.

The technical landscape seems important.  That is, bond markets--either by coincidence or design--have keyed in on trading levels and ranges that have some of their own significance, regardless of the incoming data.  There's a whole mess of this 'technical' stuff in the 2.34-2.51 area in 10yr yields.  This is sort of the "no man's land" representing the journey between the most repressed yields in history and--well--everything else.

In 2014, yields were as low as 2.40 briefly, and recently returned to bounce around 2.50 on Thursday and Friday.  The risk to the low-rate outlook is that we're witnessing an extended bounce in this zone and a refusal to return to the mid-2011-mid-2013 range.  Incidentally, 2014's lowest yield represents a perfect bounce on 2011/2012's highs.

We can see these lines in the sand in front of us, but can't really know would get us across them.  There are candidates to be sure, but good luck when it comes to ranking them.  With economic data not producing consistent results, perhaps Fed policy is more worthy of attention.  With that in mind, Tuesday and Wednesday bring the semi-annual congressional testimony from Fed Chair Yellen.  Of the two, Tuesday is the bigger potential market mover.

Beyond that, geopolitical risk and European flights-to-safety (inspiring by things like Portugal's banking issues) are constant wild cards.  As far as economic data most likely to do what it normally does (where strength hurts bond markets), Retail Sales on Tuesday is probably the best bet.  Thursday is no slouch, however, with several big reports and the weekly Jobless Claims data covering the same week as July's NFP survey (meaning this week's Claims data is perceived as more relevant by market participants).

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS RECAP: Weaker Trend Intact after Retail Sales and Yellen Testimony

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Gain access to the most accurate real-time back month TBA indications from Thomson Reuters and Tradeweb. LEARN MORE MBS RECAP: Weaker Trend Intact after Retail Sales and Yellen Testimony

As far as today's market movers are concerned, Retail Sales was dwarfed by Yellen, but most of the reaction to Yellen cancelled itself out.  In other words, Retail Sales accounted for the only decisive push into weaker territory this morning.  Yellen accounted for bigger moves but deposited trading levels right where they had been after Retail Sales.

The damage was anything but severe with Fannie 3.5s not even down an eighth at the moment and 10yr yields up less than a bp.  That said, yesterday was more decisively weak and today's more active session now acts as a sort of confirmation of that weakness. 

This keeps the pressure on bond markets from a technical standpoint in that the possibility of a reversal back to the higher end of the rate range is still alive.  The saving grace was that 10yr yields bounced nicely at 2.57, which is not only a well-traveled inflection point, but also the mid-point for a few technical studies.  Bottom line, staying under 2.57 keeps hope alive.

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live. Pricing as of 7/15/14 4:42PMEST Today's Reprice Alerts and Updates 4:06PM  :  Ongoing Weakness Heading Into Last Hour; MBS Still Off Lows 11:27AM  :  Holding Ground/Moderate Bounce; Reprice Risk Pulling Back 11:01AM  :  ALERT ISSUED: Negative Reprice Risk is Increasing 10:33AM  :  ALERT ISSUED: Back Into Weaker Territory as Yellen Q&A Begins; Lows of the Day 10:07AM  :  Back in Positive Territory As Yellen Testimony Begins 8:45AM  :  Bond Markets Weaker After Retail Sales Matthew Graham  :  "depends what you're wanting your boundaries to represent. Definitely 2.66 is important on the high end. On the bullish side, there are more choices. 2.47 and 2.40 are long-term and fairly epic. But some people look at 2.47-2.51 as "2.5" and call it good. In general, it's hard to argue with that stance as trading has been compartmentalized between 3.0 and 2.5 for the most part since mid 2013" Andrew Haynes  :  "im looking at a long term range of 2.43-2.65 and short term of 2.61-2.51 does that sound about right MG?" Michael Mitchell  :  "Hey Guys- What Lender (Retail, correspondent, Wholesale) is still doing Interest only on Jumbo?" Andy Pada, Jr.  :  "i read something like 66%" Christopher Stevens  :  "anyone know Chase drop in mtg business year over year" Discuss the MBS and Mortgage Markets on Our Streaming Dashboard

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REFILE-WRAPUP 1-Incoming S. Korean minister cites weak economy; Samsung, retail lag

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(Takes out extraneous word in the lead paragraph)

* Poll shows rates seen likely to stay on hold at Thursday review

* Samsung's disappointing Q2 earnings guidance adds to economic gloom

* Sales at major retailers likely fell in June

By Christine Kim

SEOUL, July 8 (Reuters) - South Korea's nominee finance minister vowed on Tuesday to focus on boosting consumer spending and corporate investment to bolster a sagging economy, but stopped short of calling on the central bank to consider cutting interest rates.

While all but two of 26 analysts surveyed by Reuters late on Tuesday forecast the Bank of Korea will keep the policy interest rate unchanged at its July 10 meeting, a recent softening in Asia's fourth largest economy has led to growing speculation that the central bank could cut rates.

Most analysts polled on Tuesday, however, said the next rate change would be an increase.

At a parliamentary hearing on Tuesday, Choi Kyung-hwan, 59, a former economy minister and lawmaker, disappointed bond investors who had hoped he would pressure the Bank of Korea to cut interest rates to boost domestic demand.

Bond prices fell across the board on Tuesday as Choi declined to comment when asked if he wanted the central bank to lower interest rates.

"The South Korean economy is weak, and we had the ferry sinking, while the global economy is facing stronger downside risks than we thought," Choi said.

South Korea's economy grew 0.9 percent during each of the previous two quarters on a sequential basis but recent indicators show the economy lost much of its lustre in the April-June quarter after the mid-April Sewol ferry disaster.

Choi did not elaborate on how to buoy domestic demand, saying restrictions on property-backed borrowing would be eased, modestly, given concerns that easier borrowing rules could add to already heavy household debt.

Some of Choi's earlier remarks describing an urgent need to stimulate domestic demand had fanned speculation among bond investors that the government would put pressure on the central bank to lower interest rates.

"Choi Kyung-hwan showed a neutral position on the interest rate policy stance and I think he won't pressure the central bank to cut interest rates," said Kim Min-gyu, a fixed-income strategist at Kiwoom Securities.

Sales at the country's top three department store chains and top three discount chains were estimated to have fallen in June from a year earlier, swinging from growth in May, data showed on Tuesday.

Adding to the gloomy economic mood, smartphone giant Samsung Electronics Co Ltd warned on Tuesday of weak earnings for the second quarter, which put it on track for its worst results in two years.

The manufacturer cited the strong won as a factor behind its estimated 24.5 percent annual fall in operating profit in the April-June period as the rising currency shrunk the exchange value of dollar revenues.

The won's average dollar value in the second quarter shot up by 9.1 percent over a year earlier, the fastest pace since the third quarter of 2011, central bank data indicates.

The benchmark 10-year treasury bond yield rose 3.2 basis points to 3.159 percent and the 1-year yield added 1.4 basis points to 2.563 percent.

Choi is due to start work as one of two deputy prime ministers and Minister of Strategy and Finance later this week. (Additional reporting by Se Young Lee and Yena Park; Writing by Choonsik Yoo; Editing by Tony Munroe and Eric Meijer)