MBS prices are up a bit on the session (FNMA 4.50 +2/32), although are losing steam after a weak rally earlier today. The ISM Services Index came in slightly higher than expected (50.9 vs. 50.0 est.). This had little impact on the bond markets. The stock market is up (Dow +68.39, S&P +9.85) adding to downward pressure in MBS prices (rates up). No more data will be released today, but watch for the stock market and talk of the upcoming Treasury auctions to provide bias for bond traders.
Tomorrow, Tuesday, 10/6 is another dead day for data. No economic data will be released, but we have the 3yr Treasury note auction at 11am MT. This is the first of three note offering this week. As we know, these auctions will be seen as a barometer of foreign and domestic demand for US debt, and debt instruments in general. Watch for a bid-to-cover of 2.50+ and an indirect bidder participation of 50%+. Again, the bid-to-cover number is the ratio of orders placed to orders filled. It is a direct indication of demand for a given offering. The indirect bidder participation percentage is a reflection or foreign demand for the same offering. Typically, we see foreign buyers purchase at least half of any given note issue. Any perceived weakness in these numbers may spark a sell-off in bond markets (rates up), while another average or above average auction will likely keep bonds in check.
As always, keep an eye on the stock market. We had a sharp sell-off in the stock market last Thursday that seemed to contribute to the strong MBS pricing we saw late in the week (rates down). There still exists this feeling out there that a large scale stock market correction is looming. So, any time we see a 150pts+ sell off in the US stock market, we are likely to see a short-term rally in bonds (rates down). These stock market drops are more likely to move the bond markets that stock market rallies of the same magnitude. This may be due to the media/analyst consensus that we almost need to have a sharp correction in stocks before we see any further significant gains. So, any sign of a stock market stall will beget temporary buying of bonds as a safety play.
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
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