What happened yesterday?
We had a brief pause at our
open with the Durable Goods Orders and then MBS tanked on the powerful one-two
punch of stronger than expected manufacturing data and Consumer Sentiment.Headline Durable Goods Orders dropped -2.0% vs estimates of -1.9%, this is a low number and generally great for bond pricing but it did basically match expectations and this was during the period of the government shutdown. Plus the prior reading was revised upward from 3.7 to 4.1. This is a wash and MBS largely shrugged off this report.
Initial Weekly Jobless Claims 316K vs est 330K this is generally negative for bond pricing as any improvement in the labor picture pressures bonds.
The One-Two Punch:
1) The Chicago Purchasing Manager's Index came in at 63.0 vs market expectations of 60. A reading above 50 shows manufacturing and economic expansion. This was negative for MBS pricing and rates.
2) The University of Michigan's Consumer Sentiment Index reading hit 75.1 vs market expectations of 73.5 - This was also negative for MBS pricing and rates.
Demand for our 7 year Treasury note auction decreased with a bid-to-cover ratio of 2.36 which is lower than our recent average of 2.52, this would normally have pressured MBS even more but our support level located at our 100 day moving average held as traders began to "park" their funds into bonds over the holiday. This helped move MBS off of their bottom. MBS had been trading at a session low of -62BPS and then were pulled back up above our 100 day moving average.
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