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MBS RECAP: Jostled By Cliff Headlines, Bond Markets Come Out On Top
MBS Live: MBS Afternoon Market Summary
For a trading day that had a good amount of potential for volatility, today turned out the be pretty tame, especially for MBS which held a 6 tick range from open to close. Things kicked off in moderately improved territory and silently held a super narrow range near yesterday's highs (104-29 to 104-30) in anticipation of Fiscal Cliff news ahead of weekend attempts at deal-making. Like clockwork, the first headlines of the day hit just before 11am and caused a series of minor shocks for Treasuries and MBS. A majority of bond market volume had come and gone in the hour following those headlines. Markets did more drifting vs determined trading until new headlines out of the White House landed around 3:30pm indicating that Obama was not actually making a new offer at today's Fiscal Cliff meeting (this seemed to be the suggestion of the morning's headlines). S&P's sold off 10 points by the close and Futures are currently down 20 points from the pre-headline highs. Bond markets only got a small taste of that "risk-off" move, though Treasuries hit their best levels of the day and MBS reinforced a supportive range into the close.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
104-28 : +0-04
106-20 : +0-02
107-05 : +0-02
107-31 : +0-01
106-11 : +0-04
108-20 : +0-02
109-20 : +0-02
109-12 : +0-00
104-19 : +0-04
106-10 : +0-02
106-23 : +0-01
107-05 : -0-03
Pricing as of 4:04 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.
Obama Meeting Headlines Give Bonds A Boost
Newswires are still hitting, and while there's no thunderous rally underway for MBS, details emerging regarding today's closed door meeting between the President and Congressional leaders have helped. So far, the news is underwhelming, which sent stocks to their lows of the day and helped bond markets reinforce the ground they'd already been holding.
MBS rose a few ticks as stocks sank, bu from a bond market standpoint, the reaction is more readily seen in the 1bp move lower in 10yr yields. Again, newswires are still streaming in and we may not have seen the end of this end-of-week reaction, but so far, it's looking to be positive for bond markets.
For all but the most sadistic lenders, this effectively shuts off any preexisting negative reprice bias. Positive reprice potential, however, is limited, apart from the sort of "stability" reprice" that a few lenders occasionally offer. Bottom line: positive shift in reprice risk, which at the very least, gets us back to neutrality--perhaps even better.
Back To Lows After More Cliff Headlines.
CNBC reported earlier that a Fiscal Cliff "mini-deal" could include a $400k income cap and a patch for the Alternative Minimum Tax. Separate headlines from MNI indicated that Senator Corker says a deal on taxes is likely either this weekend or in early 2013. Risk markets swung back in a less friendly direction for bond markets, similar to the move seen after the first Fiscal Cliff headlines of the day. Although MBS bounced initially, Fannie 3.0's are currently at their lows of the day.
At at 104-25, Fannie 3.0s are only 3-5 ticks off most lenders' rate sheet print times. In that regard, reprice risk is limited, but perhaps not inconsequential, depending on the lender. The bigger concern is where we could be headed of trends in broader markets continue into the afternoon.
There's a fairly pronounced "triangle" forming in the stock market (convergence of lower highs and higher lows over the past two days) that's set for a break out shortly. We'd imagine that a well-timed (and more meaningful) piece of Fiscal Cliff news could facilitate a move back to either the highs or lows from yesterday afternoon.
10yr Treasury yields have been riding an unfriendly uptrend of higher lows since just after 10am. If we see a concerted move with stocks breaking their triangle on the upside and Treasuries continuing their tortoise-like selling trend, MBS would likely have a hard time staying in positive territory on the day.
Negative reprice risk is once again "present," but we're not quite there yet as far as negative reprices being flat-out "likely." As always, a few outlying lenders may be considering pulling the trigger soon, but a majority would require 2-3 more ticks of selling.
That Was Quick... Bond Markets Find Support After Cliff News
Bond markets have effectively called the bluff of this morning's Fiscal Cliff headline suggesting that Obama would, today, offer a scaled-back Fiscal Cliff proposal. The initial burst of selling was the knee-jerk reaction and cooler heads quickly realized this offers no additional information beyond yesterday's rumors (CNN story and Scott Brown's Facebook posting) that Obama was offering a scaled-back deal. Consensus is shifting towards can-kicking.
10yr yields are off their 1.7165 highs, but only down to 1.711 currently. S&P's have dialed back 4 points from their highs and MBS showed are currently up 3 ticks at 104-28, roughly mid-range on the day.
A few conclusions:
1. It will take something meatier by way of Fiscal Cliff headline to cause wholesale panic in bond markets.
2. Simply ruling out wholesale panic doesn't mean we can rule out additional, moderate weakness between now and "meatier" headlines.
3. The correction greatly reduces any previously increasing risks of negative reprices among lenders who were out early enough with rate sheets. However, we're not seeing a triumphant stampede back to stellar levels, so we'd stay tuned and stay guarded against volatility as the afternoon approaches.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.
Matthew Graham : "RTRS- IF THERE IS NO VIABLE COUNTERPROPOSAL, OBAMA TO ASK FOR UP-OR-DOWN VOTE IN CONGRESS ON HIS PLAN-SOURCE "
Jeff Statz : "instead of saying there's no news, a redundant news release keeps people more at ease I suppose"
Jeff Anderson : "So that's a no? Ok what do you guys have? Haven't we had 18+ months of that?"
Ira Selwin : "chain the doors and say you cant leave until you've finished all thats on your plate"
Jeff Statz : "re: counterproposal... isn't that how it's worked up until now?"
Matthew Graham : "RTRS- IF CONGRESSIONAL LEADERS DON'T SUPPORT HIS PLAN, OBAMA WILL ASK THEM FOR COUNTERPROPOSAL TO AVOID CLIFF-SOURCE "
Matthew Graham : "RTRS- OBAMA PLAN INCLUDES RAISING TAXES ON EARNERS OF $250,000 AND UP, EXTENSION OF UNEMPLOYMENT INSURANCE, ADDRESSES OTHER OUTSTANDING ISSUES-SOURCE "
Matthew Graham : "bon voyage stocks?"
Matthew Graham : "RTRS - OBAMA IS NOT MAKING A NEW OFFER AT FISCAL CLIFF MEETING, SAYS SOURCE FAMILIAR WITH THE MEETING "
Matthew Graham : "RTRS- AT FISCAL CLIFF MEETING, OBAMA TO LAY OUT APPROACH THAT HE THINKS CAN PASS IN BOTH HOUSE, SENATE-SOURCE FAMILIAR WITH THE MEETING "
Matt Hodges : "no acreage limit on FHA - common for area and like comps"
MortgageMan007 : "been a while since I ran in to this, is there an acreage limit on FHA...client has house and 12 acres all in one parcel. No farm income, the ground is wooded"
Michael Owens : "switched in April to 1.75"
Michael Owens : "upfront was 1.1% I believe"
Victor Burek : "so looks like a 56% refund of premium"
Victor Burek : "i believe the formula for refund is 80% of premium minus 2% each month they have had loan"
Tim Mitchell : "OK question, working on an FHA streamline, home was purchased in 2/2012 - what was the UFMIP then and how much refund will they recieve if we close in Jan?"
Ira Selwin : "Joe - you can also click on the advanced charts to see where the prices were."
Joe Ridings : "Vic, Ira can i find that here somewhere?"
Ira Selwin : "(12/10 opened at 105)"
Victor Burek : "i show we opened at 105-08 and closed at 105-02"
Joe Ridings : "Matt G, what was price on FNMA 3.0 on Dec7th? "
Thomas Nelson : "Which is a goofy rule. If somebody has 20k in their savings account, why should they not be able to pay off a 7k car if they easily qualify with 13k left in reserves?"
Thomas Nelson : "Even though it has an asset backing it, they would have to liquify that asset to pay the debt......you can't pay debt off to qualify."
Thomas Nelson : "I believe you do Vic if it is over 10 payments left."
Victor Burek : "on a conventional rate and term refi.. if client has a secured loan against a CD she has, can i omit that payment from DTI?"
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