Saturday, 23 November, 2019

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MBS Week Ahead: Bonds On The Run As Brexit Hopes Remain


Last week saw the US bond market fight off an intermittent barrage of weakness  as global markets geared up for the weekend’s big Brexit vote.  By Friday, 10yr yields were only 2bps higher on the week.  This left them just inside the longer-term consolidation pattern we’ve been following (in the chart below), but at risk of breaking out depending on the reaction to the weekend’s events.

We expected 2 of the 3 possible outcomes (Brexit deal approved or delayed) to be bad for bonds while only the longshot outcome (no-deal Brexit with no request for extension) would have been good.  As expected, British lawmakers opted for the middle path by foregoing a vote on the current Brexit deal and instead forcing Prime Minister Johnson to request an extension from the EU.  

The bond market response was logically weaker and it sets the tone for the rest of the week.  Simply put, US yields are fighting for their lives or, rather, the life of the consolidation pattern.  Today and tomorrow will be important in determining yields’ ability to remain in the pattern.  That said, a breakout doesn’t guarantee additional momentum toward higher rates, but it’s a risk to beware (and wary) of.

20191021 open

In addition to the tradeflow reaction to the Brexit news, there will eventually be some economic data to trade this week.  Thursday is the focal point with Durable Goods and Markit PMIs (both manufacturing and services).  It’s also a Treasury auction cycle week, which can create some additional pressure leading up to the auctions.


MBS Pricing Snapshot

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

MBS FNMA 3.0

101-02 : -0-03

Treasuries 10 YR

1.7830 : +0.0330

Pricing as of 10/21/19 9:06AMEST

Tomorrow’s Economic Calendar
Time Event Period Forecast Prior
Tuesday, Oct 22
10:00 Existing home sales (ml)* Sep 5.45 5.49
10:00 Exist. home sales % chg (%)* Sep -0.7 1.3
13:00 2-Yr Note Auction (bl) 40
Wednesday, Oct 23
7:00 MBA Purchase Index w/e 250.6
7:00 Mortgage Refinance Index w/e 2505.8
9:00 Monthly Home Price yy (%) Aug 5.0
13:00 5-Yr Note Auction (bl)* 41
Thursday, Oct 24
8:30 Nondefense ex-air (%)* Sep -0.2 -0.4
8:30 Durable goods (%)* Sep -0.8 0.2
8:30 Jobless Claims (k) w/e 215 214
8:30 Continued jobless claims (ml) w/e 1.675 1.679
9:45 U Markit Mfg PMI Flash Oct 50.7 51.1
9:45 U Markit Svcs PMI Flash Oct 51.0 50.9
9:45 U Markit Comp Flash PMI Oct 51.0
10:00 New home sales-units mm (ml)* Sep 0.701 0.713
10:00 New home sales chg mm (%)* Sep -0.7 7.1
13:00 7-Yr Note Auction (bl)* 32
Friday, Oct 25
10:00 Consumer Sentiment (ip) Oct 96.0 96.0