Saw this short note from BBG and wanted to keep it for posterity sake,
Treasury Rally Disrupted by Mortgage Origination
Price action in mortgage-backed securities has been dictated by fast money front-running the supply of loan origination of late. The dominance of these fast money flows could easily dictate intraday direction in Treasuries, a sister market to MBS, as well. That’s exactly what happened today. After a short-cover rally following a historic CPI report, Treasuries reversed gains. As government bonds rallied, hedge funds started to anticipate the morning’s mortgage production pipeline -- it has tallied ~$2 billion so far, traders tell me. Another round of origination is likely in the afternoon. That supply pressure though is likely to be more than offset by a large Fed operation in MBS today that should act as a source of support.
Nothing without consequence. Noted earlier the mortgage applications data (part of what was noted overnight, you know, while we slept) which is a part of the story still developing and we’ll not have answers today but only in the fullness of time. Higher rates, though — FEAR — said to partially result in increased buying (but should hit refi?) but as I’m not mortgage expert — only been paying one for most of my life — it would seem to ME that a sort of pulling forward of activity will EVENTUALLY help in as far as Team Transitory and limiting gains (OER)? at some point?
More questions than answers, I know … I know…