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Market Commentary

Market Commentary

Today's Market Commentary
June 24, 2013
10-YEAR NOTES   92-13 (-28) 2.63%
FN 3% COUPON   99-11 (-1-05)
SUPPORT   2.85%
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Chicago Fed Nat Activity Index came in at -0.3 vs. -0.1 expected. At 10:30 AM EST the Dallas Fed Manufacturing Activity will be released (-1.5 expected). At 11:00 AM EST there is a $3-3.75 billion UST buyback in the 3/2019-5/2020 sector.

Overnight, Asia was a better seller of Treasuries and MBS further pressuring rates and MBS spreads. Stock markets across Europe and Asia are in the red (especially Asia, Shanghai -5%). In the US, the market is getting rocked as 10-Year notes are down 3/4 point and MBS are another 0.5 point wider to duration hedges (negative convexity at its finest). The latest leg down has been swift and brutal as even the once "bullet proof" front end of the yield curve starts to give way. Two Year notes have blown through strong support at 0.4% (the yield was 0.25% on 5/24) and 5-Year notes are now above 1.50%. The sharp steepening in 2s5s (now 110 bps) has really unnerved the market and hammered pricing on both ARMs and Fixed as evidenced by FN 3.5 coupon now well below 100 in the front month. All of this move can be attributed to the world adjusting to a Fed-less market as opposed to a true belief in a strong, sustainable recovery. Given the air pockets in the technical charts, weak long positions in the market, and convexity/bond fund redemptions the market very well may test 2.85% and then 3% barring any major negative news to add a bid to the market. Until positions get squared away and the market settles into a range, expect fear and loathing to persist in the bond markets.

There are several Fed speeches this week with the seemingly most important ones being Dudley on Thursday and Stein on Friday.

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