Rates Resilient As ‘Risk On’ Trade Continues

Given how stocks and bonds have correlated most of this year, the assumption is that rates rise (as bonds sell) when stocks rally. Mostly true if you’re looking at Treasuries. But the mortgage bonds (MBS) that rates are tied to have been incredibly resilient. Each day this week MBS have started down sharply (pushing rates up) as stocks rally, then MBS rise. Monday and Tuesday ended positive and as of right now (3:39 pm ET), the Fannie 3.5% coupon—a key benchmark lenders use to price rates—is only down 9 basis points after being down as much as 39 basis points. Below are links on the latest EU aid plan and better US economic data that are causing stocks to rally. And I’m sticking to my rate outlook this week.
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-6 Central Banks Cut Dollar Costs To Ease EU Crisis (Bloomberg)
-Primer: How Europe Borrows Dollars From Fed (CNBC’s John Carney)
-Tell-All Chart: Euro At Higher Low, T-Bond At Lower High (AllstarCharts)
-Concrete Ceiling For MBS Becoming Concrete Playground (MND)
-Improving Data: Jobs, Pending Home Sales, Manufacturing (TBP)