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MBS RECAP: Bond Markets Tag-Teamed By ECB, FOMC, and NFP
MBS Live: MBS Afternoon Market Summary
Overnight, the ECB reported on the LTRO repayments for the first time since handing out the cheap 3-yr loans in late 2011. It turns out more than half of the 523 banks in the program decided to pay the ECB back as soon as they'll be allowed (5 days from now), which makes for an amount more than 33% bigger than expectations. This is a huge hit for the "EU is gonna collapse!" crowd. Without saying anything about the nature of economic growth in the EU, the that "crowd" is a major reason that rates have been as low as they were/are. If the EU looks less on the bring of utter collapse, rates rise, as they have been for the past 7 months (it's been harder to see in terms of mortgages due to the timing of QE3.
Then there's the domestic situation. It might not be all sunshine and lollipops either, but we've had two weeks of big beats in Jobless Claims and NFP in the coming week along with an FOMC announcement from a Fed that's explicitly tied the policy outlook to unemployment! It's hard to know whether NFP or the FOMC Announcement is next week's chicken or egg, but it looks like markets are already getting a bit queasy at the thought of trying to digest either one, should it prove to be the least bit unpalatable.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
103-15 : -0-20
105-19 : -0-12
106-10 : -0-07
107-11 : -0-05
104-14 : -0-21
107-17 : -0-13
108-26 : -0-08
109-04 : -0-01
103-03 : -0-20
105-10 : -0-12
106-01 : -0-06
106-12 : -0-07
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.
Snowball Under It's Own Momentum. More Reprice Risk
There continues to be no new news driving rates markets this afternoon. Rather we're simply seeing snowball selling run its course. 10yr yields are at new highs for the day near 1.95 and MBS briefly touched new lows at 103-12 in Fannie 3.0s. Negative reprices continue to be a risk. 2nd and 3rd rounds of negative reprices continue to be a risk for some lenders.
Reprices Hitting Now, And Remain Likely In Most Cases
The sell-off continues to extend into capitulative territory with MBS now well below their January 4th lows, and well into early September 2012 territory. Nothing new has happened and the current weakness is a product of itself rather than any headline cause and effect (though the latter was the initial catalyst).
Snowball selling, capitulation, pain trade, whatever you want to call it, negative momentum has taken its toll and more of the same can't be ruled out until we bounce back definitively. Really, only the lenders who priced late in the morning and who erred on the conservative side stand a decent chance of NOT repricing.
Volatility Increases After EU Close, MBS At Lows, Reprice Risk
Fannie 3.0 MBS are at their lowest levels since before QE3, edging just 1 tick lower than January 4th's lows. Depending on the time of day of the initial rate sheet, negative reprice risk is increasing.
The recent leg down arrives after the close of European markets. Treasuries futures volumes dropped off much more than usual indicating that European tradeflows kept trading activity especially active this morning. Lower volume can always lead to volatility and it's working against us at the moment. 10yr yields are also testing a break of their highest yields of the morning in the mid 1.92's.
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- WHITE HOUSE SAYS COURT DECISION HAS NO BEARING ON RICHARD CORDRAY APPOINTMENT, RULING LIMITED TO SINGLE CASE "
Matthew Graham : "RTRS- WHITE HOUSE SAYS RESPECTFULLY BUT STRONGLY DISAGREE WITH COURT RULING AGAINST RECESS APPOINTMENTS TO NATIONAL LABOR RELATIONS BOARD "
Edgar : "Suntrust took another .30 "
Nate Miller : "REPRICE: 1:54 PM - Interbank Worse"
Christopher Stevens : "REPRICE: 1:47 PM - GMAC Worse"
Christopher Stevens : "REPRICE: 1:45 PM - Wells Fargo Worse"
Dustin McAlister : "REPRICE: 1:36 PM - Franklin American Worse"
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