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Market Commentary

Market Commentary

January 08, 2015
10-YEAR NOTES   102-05 (-11)
FN 3.5% COUPON   104-26.5 (-06)
SUPPORT   2.40%
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    We have a quiet day today ahead of tomorrow's Nonfarm Payrolls with only the standard claims data release. Initial Jobless claims decreased by 4K to 294K, in the week ended January 3, pulling down the 4-week average to 291K. Continuing claims rose from 2353K to 2453K, but the 4-week average fell 17K to 2.397 Million.
      Yesterday, treasuries reversed their seven day rally ahead of the Nonfarm Payrolls release, and in response to numerous press reports suggesting that President Obama will announce a -50 bps reduction in the FHA's mortgage insurance premium (MIP) as part of his speech today (January 8, 2015). The big question is whether the news applies to new purchases or annual MIP for existing loans, and in the case of a reduction in annual MIP for existing loans we could see a mini-refinance wave. Ginnie's took a beating as the MIP rumors circulated, with the G2 3.5 coupon down -16 ticks vs. the prior day's close. The 10-Year note rallied +1 tick, pushing yields down -0.7 bps to test new resistance levels at 1.956%. The coupon stack widened in the belly coupons, down 1-2 ticks with the wings tightening 1-2 ticks, and MBS underperformed treasury hedges by 4-8 ticks with the lower coupons outperforming the higher coupons. The curve bear steepened, after flattening for seven consecutive days, with 2s10s up +0.9 bps to 134.1, pulling the 20 day average to 150.3 vs. 166.6 prior. Long-end yields fell, pushing the 30-Year bond to the lowest level since early 2012, down -0.4 bps to 2.521%. The 30-Year current coupon increased +2 bps on the day, closing at 2.65% and the 15-Year followed suit, up +1 bps to 1.95%. The G2/FN swap declined 10-12.125 ticks in the production coupons led by a -12.125 tick decrease in the 3.5% coupon. The G2/FN 3.5% swap declined to 0-6.5 vs. 0-18.625 prior.
This Week's Events:
01/08 Initial Jobless Claims 05:30 January 3 290K 294K 298K -
01/08 Continuing Claims 05:30 December 27 2360K 2452K 2353K 2351K
01/09 Nonfarm Payrolls 05:30 December 240K - 321K -
01/09 Unemployment Rate 05:30 December 5.7% - 5.8% -
01/09 Wholesale Inventories MoM 07:00 November 0.3% - 0.4% -
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