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Though MBS were not quite as thinly traded as treasuries (lowest volume since the first trading day of 2010), the picture wasn't much better. At least that which is at risk on low volume days--volatility due to the trading that actually happens comprising a larger portion of the total--was not present. Quite the opposite in fact, as the the same trend that began to emerge early this afternoon remained intact through the close. In MBS, the 101-07 to 101-10 range covered almost everything since 1030 AM. That's a quiet, boring day. I move a lower trendline down to 3.57 on the 10yr yield to show that we're going out today at an even lower yield level than Friday. So don't let the entire day of slightly worse readings fool you... The net effect for both markets was FLAT. And in the spirity of our discussion in MBS Afternoon, this is what we'd expect on a data-free Monday before data-free Tuesday (of course not so "data-free" come time for the 3yr auction). In that sense, there is not much guidance to go on, save for the price levels and tradeflows themselves. And if history is any guide, we might expect a bit of a concession to get built into the longer end of the yield curve starting tomorrow. Of course, just when you think you have things figured out, the market will do what it needs to do in order to make as many people "wrong" as possible, but at least we can say that the pre-auction concession seems to be a near certainty for much of 2009...

Mr. O’Reilly (December 01, 2009) claims that the “new” root cause of the housing crisis is the (lack of) “jobs, jobs, jobs.” So the solution to the crisis must be (the creation of) “jobs, jobs, jobs.” I agree. But the next question is this: What sort of jobs? ...

In the past year, we’ve still seen a few companies allow their loan officers to lock directly with investors. Investors today allow their correspondent customers to manage secondary market activities and margins from their web sites. We believe this is a dangerous process that can lead to revenue leakage and poor pull through with investors not to mention product guideline violations and a higher chance of loan repurchase demands. All of these can be costly to an operation. ...

The market is duller than a Colts victory parade at the moment. We're dealing with a fairly standard issue "calm before the storm" that we often see on a data-limited Monday when the rest of the week contains the more significant events. The supportive trends we began to note in the last post have continued to foster a narrow range of prices with almost perfectly flat directional movement. In other words, the simple existence of a "narrow range" doesn't always mean prices aren't moving. We can see narrow ranges while still moving DIRECTIONALLY. For instance, even on a 16 tick rally, if the subsequent highs and lows are only a tick or two higher than their previous marks, the line on the chart would be fairly smooth yet still be very much higher at the end of the day. So when we talk about "narrow" and "directional," we're talking about two different qualities of the trading action--"narrow" referring to the distance between highs and lows (can be thought of as volatility as well), and "directional" referring to actual changes in price levels. The farther away prices are from where they were, the more directional. Make sense? Bottom line, the days that are both narrow and that lack directionality are better than 4 fingers of single malt and a Morphine IV Drip if you're trying to catch some mid-day Z's, much less interesting Z's, but at least you can get up and go home fairly soon. The rest of...

As AQ pointed out this morning, today's slightly downward trend in MBS price began in the final hours of Friday's trading. Both MBS and Treasuries put in their best marks of the day just before 2pm, and have moved steadily downward ever since. You may notice, however, that both markets appear to be losing that negative steam near current levels. For Treasuries, that looks to be around 3.60 and for MBS, around 101-08. At the moment, the Fannie 4.5 is a tick higher than that at 101-09, but is still 5 ticks lower from Friday's closing prices. All that being said, the more important trends to watch pertain to the generally supportive range for MBS that emerged even before Friday's boomy rally. AQ pointed this out as well, and it remains pertinent at the moment. You can see on Thursday, after breaking the 101-06 level, prices returned for a test and were met with support. Then on Friday, factoring out the immediate volatility from NFP, that same 101-06 level is the first real pivot point of the morning, in the sense that it was the first potential resistance from the oversold volatility early, and acted as support immediately thereafter. Since we're so close to the mark right now, and since it suggests itself as one of the more important levels of late, I couldn't think of a better price to watch as a good barometer of potential lender rate sheet changes. In other words, if we go much lower, we'll be letting you know that potential reprices are on the way...

Nothing has changed from Friday. Mortgage rates continue to run into a floor at 4.75%. This has held true all month! My lock bias is based on the big picture outlook. Barring a major shift in sentiment that drives benchmark Treasury yields lower, mortgage rates should move higher in months to come. While floating day to day can result in small reductions in borrowing costs, the risk of rates rising is large. This is long term guidance. If you are looking to continuing floating, keep an eye on the stock market. If stocks extend recent weakness I wouldn’t be totally against floating overnight, but again I point out the 4.755 floor we appear to have hit in mortgage rates. On the other hand, if stocks rally, money will flow out of the fixed income sector which would most likely lead to worse mortgage pricing and higher rates. This highlights why we continue to advise locking: the amount of risk associated with floating are not justified by the possible reward. There is still much more room for rates to rise than to fall. ...

"Rate sheet influential" MBS coupons and benchmark TSYs are testing the staying power of Friday's FTQ fixed income rally. A solid move below 101-06 would start to raise the odds for a reprice for the worse....

MBA Takes Loss on Headquarters; CRA Loans; HAMP Servicer Updates; Prepay Speeds; Updates: GMAC, FAMC...

Stocks sold off in a panicky fashion last week as sovereign debt concerns grew over Greece, Portugal, and Spain's ballooning budget deficit and rising borrowing costs. If a coordinated global recovery is to remain on course, one has to assume some sort of financial intervention from the likes of the IMF is in the not so distant future. The "sell now ask questions later" sentiment that ruled equities for the latter half of the week had strong effects on the bond market. After 10s touched the outer limits of their recent range near 3.71%, yield plummeted as flight to quality fund reallocations poured into the benchmark bond market....

The week ahead is a particularly slow one. The only major releases are the Trade Balance on Wednesday and Retail Sales report on Thursday. Plus, Friday will see February’s first measure of consumer confidence. With little fresh data to anticipate, the fear is that markets will continue on their downward path this week. Since January 19 the Dow has shed 5.6% while the S&P 500 has lost 6.9%. One hour before the opening bell, however, equity markets are looking stable. Dow futures are up 10 points to 10,012 and S&P 500 futures are up 3.08 points to 1,066. ...

When something is on a doorstep--any doorstep--there are only two places it can be going: either back inside the metaphorical house, or back to the world outside. Bonds, as represented not by our namesake MBS, but by the 10yr Treasury note, find themselves in just such a dualistic state this evening. They too, are on a doorstep, their location being most perfectly defined neither by the "outside" or the "inside." when we are talking about outside versus inside, it's in reference to the range in which the 10 year treasury was trading between August 21 and December 14, 2009, "the brave old world." These four months represent a unique time in the economic history surrounding the financial crisis. it was a unique time in and of itself in that we were neither rising meteorically off the record lows in January and February, neither did we find ourselves flirting with the 4% level during the summer doldrums. in a real sense, this was the first time in 2009 but the market got a chance to simply "be." Things were still weak enough that backing up into 4% wasn't a meaningful risk, but the recovery was enough of a possibility that we were not testing the 3% level either. During any other period in 2009, you point to SOMETHING and explain away some sort of extreme movements of the curve. But not during these months. It's no wonder that the notion of "THE RANGE TRADE" grew to dominate the markets, and consequently, our analysis...

Sellers reacting to the depressed price of their houses appear to be holding back improvements in the housing market according to a survey by Thompson Reuters released Friday....

After reaching as high as 101-20, MBS 4.5's are back down to 101-14. Its seems that layers of support are building at levels that would leave 4.5's at PAR after settlement next week. Far be it from me to suggest there's some sort of external force that continues to push 4.5's toward that 101-00 level, but it LOOKS that way on the chart at least. Meanwhile, stocks had recovered 100% of today's losses, though with the close still 20 minutes away, difficult to say where things will end. As for treasuries, the yield curve is reasonably unchanged on the day save for a little bulge in the belly (5's and 7's leading the pack by 2bps). All told, the stock lever did what we wanted it to do in the case of a stock sell-off today, and as stocks have rallied, little of what we wouldn't want it to do! The resiliency of bonds and MBS continues... Normally, after a 7 tick loss in MBS, we might start talking about reprices for the worse as an outside possibility, but that's such an insanely remote possibility, that it only makes sense to act on it for deals you're already planning on locking today, AND at lenders who you already feel have priced in a ton of the gains. If you look at the bigger picture for stocks: and bonds the situation doesn't seem to warrant any panic whatsoever... We'll let you know if if tsy yields get much higher than 3.56 in the next hour and change.

A re-engineering of the secondary market is going to take some serious time. And brains. It’ll require some of the brightest minds in finance and public policy to figure out how to keep the liquidity Fannie and Freddie provide while losing the inherently harmful incentives of the old regime. The trouble is that most of the officials responsible for crafting a solution are the very same ones working overtime helping to keep the current housing market afloat amidst a very fragile economy. Our one message to Washington’s housing policymakers: take your time and get it right. Too much is at stake, for the millions of Americans whose futures rely on a strong housing finance system. ...

When considering the LOCK vs FLOAT decision, I think of it as so: WE ARE PLAYING CHESS, NOT CHECKERS. My lock bias is based on the big picture outlook. Mortgage rates are currently priced near very aggressive levels. Barring a major shift in sentiment that drives benchmark Treasury yields lower, mortgage rates should move higher in months to come. While floating day to day can result in small reductions in borrowing costs, the risk of rates rising is large. This is long term guidance. ...