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Stocks are trading sharply higher to begin Monday’s trading session as trade tensions cool. U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90 day trade truce as the two continue to hash out details of a viable agreement going forward. The White House relayed “President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.” Global equities rallied in response to the news. The S&P500 is currently trading at 2,793.78, 1.22% higher, and is 4.50% higher YTD.
Treasuries are moving lower in the AM as asset allocators shift funds in response to cooling trade tensions between the two-largest economies. Last week, the US 10-YR Note shed about 5bps as dovish speeches from both the Fed Chair and Vice Chairman helped cajole investors back into debt. Additionally, the 2/10 Yr spread is currently hovering around a YTD low at 18.6bps. The US 10-YR Note is floating around the crucial psychological/technical 3% level at 3.0096%, 0.0218 higher.
MBS Performance and Volumes
MBS mostly lagged their Treasury hedge ratios in fairly active trading. Most 30-year coupons either tracked the 10-year note or lagged by 1/32, with the exception of a 3/32 underperformance by Fannie 5s. Ginnie IIs had a pretty similar session, as most coupons trailed 10s by a tick. 15-year Fannies had more varied results; Dwarf 2.5s and 3s lagged the 5-year note by 1/32, while 3.5s lagged by 2 ticks and 4s actually recorded a 4/32 outperformance (although the mark is somewhat suspect). FINRA reported a total of $200 billion in total trades, including $8.5 billion in specified pool activity.
TBA MBS’ are little changed in the AM, standing firm in the face of a rally in global equities. Dovish Fed speak provided a boon to MBS last week as the FOMC conveyed skepticism about the pace of hikes in 2019. All eyes will now shift to November’s Nonfarm Payrolls report set to be released Friday. Bloomberg is currently expecting 198K jobs added, and an unemployment rate of 3.7%. Liquid coupons are currently trading 1 – 2 tics lower.
The USD is moving slightly lower as gains against the GBP are being offset by losses in the EUR. Political turmoil continues to hamper demand for sterling as the Brexit calamity moves forward. The DXY is currently trading at 96.96, 0.13% lower.
Oil is rallying hard in the AM as all eyes shift towards OPEC. Analysts are suspecting a considerable cut to supply moving forward as the group gears up to meet in Vienna later this week. WTI is currently trading at 52.61, 3.30% higher.