November 8, 2018

Stocks are moving lower to begin Thursday’s exchange as investors patiently await color from the US Central Bank.  The FOMC is set to announce their policy decision at 2PM EST.  Currently, Bloomberg has the odds of a rate hike pegged at 13.4%.  The S&P500 is currently trading at 2,806.03, 0.28% lower.

Treasuries are little changed in the AM as all eyes turn towards the Federal Reserve.  The Fed is widely expected to leave rates unchanged at today’s meeting, setting the stage for a 25bp increase in December.  Pay close attention to any changes in rhetoric/projections, as deviations from expectations have the ability to send markets careening.  The US 10-YR Note is currently trading at 3.2188%, 0.0166 lower.

MBS Performance and Volumes

MBS ended the day mostly ahead of their Treasury hedge ratios in fairly heavy trading ahead of Class A notification.  30-year Fannies ended the day 1-3 ticks better than the 10-year note, with 3.5s having the best session, while Ginnie II 3.5s to 5s ended the day outpacing 10s by 3-5 ticks.  The poorest performers were the lower coupons; Fannie 3s closed in line with the 10-year, while GNII 3s lagged the Treasury by 2/32s, duration-adjusted.  15-years had a strong session, with Dwarf 2.5s through 3.5s ending the day outperforming the 5-year note by 5/32s.  Total MBS activity was $395 billion, including about $25.5 billion in specified pools.

TBA MBS’ are marginally higher in the early morning shuffle as investors clamor for color concerning the trajectory of interest rates in 2019.  On top of this, initial jobless claims continue to hover near a 50 year low, indicating that the labor market is sound and healthy.  Liquid coupons are currently trading 1+ tics higher.

The USD is holding steady in the AM as investors avoid major shifts in allocations before the Fed announcement at 2PM EST.  YTD the DXY is up 1.39%, and is currently trading at 96.18, 0.02% higher.

Oil is flipping between gains and losses on Thursday after 8 straight days of losses.  It looks like OPEC is considering supply cuts yet again as crude plummets.  WTI is currently trading at 61.36, 0.50% lower.