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Today's Market Commentary

Wednesday, June 12, 2013

10-year notes 95-31 (-5.5) 2.205%
FN 3% Coupon 99-30 (-2.5)
Support 2.235%
Resistance 2.06%

While small business optimism rose to a one year high in May in the U.S., the effects of Bank of Japan's announcement that it would refrain from expanding its stimulus program has persisted throughout the day as European equities all closed dramatically lower. U.S. equities also responded similarly, with the Dow closing -116.57 lower to 15,122.02, the S&P down -16.68 to 1,626.13, and the Nasdaq down -36.82 to 3,436.95. The bond markets in the U.S. experienced a reversal on Tuesday after observing Bank of Japan's inaction, leaving the benchmark 10-Year 11 ticks higher to a yield of 2.18%.

In anticipation of servicer and originator selling, MBS opened up wider yesterday. Further pressure came from Hedge fund selling to push the FN 3s and 3.5s 5 and 4 ticks wider in the morning until overseas buyers came in to push those coupons 2 ticks and 1 tick tighter, and steady buying for the rest of the day helped the lower end of the stack outperform the higher ones.

MBA announced today that application volume has increased for the first time in five weeks, with overall application rate up 5%. At the same time, survey gathered from lenders is showing that borrowers' refinance rates have topped for a few days, but overall volume continues to slow due to seasonal demands and the overall backup of rates, while many mid-sized lenders are trying to offer lower rates with reduced margins in order to attract more volume.

Key Economic data released today:

Time Event
Survey Prior
04:00 AM MBA Mortgage Applications June 7 5.0% -11.5%

Key Economic data scheduled to be released today:

Time Event
Survey Prior
11:00 AM Monthly Budget Statement May 92.1 94.4
11:00 AM UST Buyback 8/23 to 2/31 sectors ($0.75-$1.00 billion) 5.0%-11.5%
01:00 PM $21 billion 10-Year Note Auction

*Support is the yield level at which demand is thought to be strong enough to prevent the price from declining further.

**Resistance is the yield level at which selling is thought to be strong enough to prevent the price from rising further.


           








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