Yesterday’s ISM Non-Manufacturing Index rose to 58.7 vs. 56 in June, the highest level since December 2005, sparking a sell-off in treasuries. On the calendar today we have MBA Mortgage Applications and data on the Trade Balance for June. MBA Mortgage Applications rose +1.6%, during the week ending August 1st, following a -2.2% decline the week prior. Purchases declined -1.3% vs. +0.2% prior (-13.6% YoY) and Refinancing rose +3.8% vs. -4.0% prior (-38.7 YoY). Total June exports of $195.9 Billion and imports of $237.4 Billion resulted in a Trade Balance deficit of -$41.5 Billion (consensus -$44.8 Billion). The goods deficit decreased -$3.0 Billion from May to $60.3 billion, and the services surplus increased +$0.1 Billion to $18.7 Billion. The standoff in Ukraine has been further escalated in the wake of both US and European sanctions against Russia and this morning 10-Year yields fell to the lowest yields since May as increasing tensions fed the flight to quality. The FNMA 30-Year current coupon fell -2.9 bps to 3.193 vs. 3.222 prior and the 15-Year current coupon fell -1.7 bps to 2.307 vs. 2.324 prior. Yesterday MBS underperformed, closing +1.5 ticks wider to treasuries, and today the curve has bull flattened with 2s10s down 2 bps and MBS continues to underperform by 2-3 bps.
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