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MBS MID-DAY: Mortgages Underperform While Bond Markets Weaken
Posted to: MBS Commentary
Friday, February 08, 2013 11:08 AM

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MBS Live: MBS Morning Market Summary
MBS are tanking this morning in just about as negative a scenario as we could imagine short of a major headline market mover.  Yesterday's headlines may be continuing to have some effect in that the congressional calls for Demarco's resignation coupled with the reintroduction of the Boxer bill could be weighing on prices.  More than anything though, illiquid trading conditions, both because of the roll (monthly MBS coupon settlement) and the snowstorm in the East coast, have weighed on MBS relative to broader bond markets.  Making matters significantly worth this morning is incremental weakness in broader bond markets!  Treasuries fared well overnight, but began edging higher in yield into the domestic stock market opening bell at 9:30am.  10yr yields were just hitting a major intermediate inflection point at 1.953, a line that's been on our Treasury charts for several weeks.  Once that was broken, the selling came quickly and in higher volumes as stocks soared to fresh 5yr highs. 
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
103-04 : -0-07
FNMA 3.5
105-12 : -0-08
FNMA 4.0
106-07 : -0-05
FNMA 4.5
107-04 : -0-06
GNMA 3.0
104-12 : -0-03
GNMA 3.5
107-18 : -0-03
GNMA 4.0
108-22 : -0-04
GNMA 4.5
109-03 : -0-03
FHLMC 3.0
102-24 : -0-05
FHLMC 3.5
105-05 : -0-05
FHLMC 4.0
105-30 : -0-05
FHLMC 4.5
106-14 : -0-02
Pricing as of 11:08 AM EST
Morning 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 morning.

10:05AM  :  ECON: Wholesale Inventories and Sales Weaker Than Expected
- Inventories -0.1 vs +0.4 consensus
- Sales +0.0 vs +0.6 consensus

The U.S. Census Bureau announced today that December 2012 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $418.9 billion, virtually unchanged (+/- 0.5)* from the revised November level, but were up 3.7 percent (+/-1.1%) from the December 2011 level. The November preliminary estimate was revised downward [forwardfullbody].6 billion or 0.1 percent. December sales of durable goods were down 0.9 percent (+/-1.1%)* from last month, but were up 0.9 percent (+/-1.4%)* from a year ago. Sales of professional and commercial equipment and supplies were down 2.3 percent from last month. Sales of nondurable goods were up 0.8 percent (+/-0.5%) from November and were up 6.1 percent (+/-1.6%) from last December. Sales of drugs and druggists' sundries were up 4.8 percent from last month and sales of beer, wine, and distilled alcoholic beverages were up 1.8 percent

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $497.7 billion at the end of December, down 0.1 percent (+/-0.4%)* from the revised November level, but were up 5.5 percent (+/-1.2%) from the December 2011 level. The November preliminary estimate was revised downward [forwardfullbody].7 billion or 0.1 percent. December inventories of durable goods were up 0.2 percent (+/-0.5%)* from last month and were up 7.7 percent (+/-1.6%) from a year ago. Inventories of electrical and electronic goods were up 2.6 percent from last month, while inventories of motor vehicle and motor vehicle parts and supplies were down 3.8 percent. Inventories of nondurable goods were down 0.6 percent (+/-0.5%) from November, but were up 2.4 percent (+/-1.9%) from last December. Inventories of farm product raw materials were down 6.0 percent from last month and inventories of drugs and druggists' sundries were down 4.3 percent.
9:46AM  :  ALERT ISSUED: Stocks Surge At Open. Treasuries Injured. MBS Destroyed
While it's nothing on the scale of NFP Volume or even some of the other bigger days last week, Treasury volume picked up substantially into the 9:30am opening bell for stocks. The latter have surged to fresh 5 year highs in short order with cash S&P's at 1516.65.

10yry yields are now looking like they're making a major technical rejection of the 1.93's and have shot quickly higher to 1.975. MBS have essentially continued to hold the same underperformance vs Treasuries and thus are even worse off with Fannie 3.0's now down to 103-01.

Prices have been a moving target. Any lender that's already out with rate sheets is likely to reprice for the worse.
9:18AM  :  Markets Go "Risk-On." Treasuries Doing OK, But MBS Suffer
The illiquidity potential mentioned in this morning's Day Ahead, is playing out in far far grander fashion than we might have expected with wide buyers and sellers reading from two different scripts, neither side fully sure of where the real market is or should be. The extra bit of volatility and uncertainty that's come along with this morning's illiquidity could, in part, draw on the uncertainty introduced by the Boxer bill being reintroduced yesterday, as well as earlier news that 45 members of the house urged the President to replace DeMarco (Huff Post story).

Whatever the underlying attributions may be, what's clear is that MBS are struggling for MBS-specific reasons. That struggle is only marginally compounded by weaker bond markets into the morning with 10's merely edging up from 1.937 to 1.9517 currently. S&P futures have added a few points ahead of the open and are back in line with 9:50am levels from yesterday (before they started their fairly big slide).

On a positive note, as seen in the chart from the Day Ahead, If MBS manage to stabilize here, we'd still be right around the intermediate support of 103-00 after tonight's roll. The other positive is that the initial slide in prices looks to be settling down here, but perhaps most positive is that the drama is occurring before rate sheet time. That's not positive vs yesterday, but since it's no longer yesterday, we'll look on the bright side.
8:41AM  :  ECON: Trade Deficit Narrower Than Expected, Oil Deficit Lowest Since 1997
- Trade Deficit $38.54 bln, narrowest since Jan 2010
- Exports +2.1 pct vs +1.0 last month
- Imports -2.7 pct vs +3.7 pct last month
- Opec deficit $3.4 bln vs $6.6
- Petroleum deficit lowest since August 2009
- Crude Imports lowest since Feb 1997
- Total 2012 deficit $540 bln vs $559.9 bln in 2011

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total December exports of $186.4 billion and imports of $224.9 billion resulted in a goods and services deficit of $38.5 billion, down from $48.6 billion in November, revised. December exports were $3.9 billion more than November exports of $182.5 billion. December imports were $6.2 billion less than November imports of $231.1 billion.

In December, the goods deficit decreased $9.4 billion from November to $56.2 billion, and the services surplus increased [forwardfullbody].7 billion from November to $17.7 billion. Exports of goods increased $3.3 billion to $132.6 billion, and imports of goods decreased $6.1 billion to $188.8 billion. Exports of services increased [forwardfullbody].6 billion to $53.8 billion, and imports of services decreased [forwardfullbody].1 billion to $36.1 billion.

The goods and services deficit decreased $13.2 billion from December 2011 to December 2012. Exports were up $8.6 billion, or 4.9 percent, and imports were down $4.6 billion, or 2.0 percent.
8:29AM  :  Bond Markets Slightly Stronger Ahead Of Data
It was a generally quiet overnight session for bond markets. 10yr Treasuries rose toward 1.97 in early Asian hours, but improved steadily before meeting resistance just above yesterday's low yields.

The European session brought stronger-than-expected Trade data from Germany. While this did have some upward pressure on yields, it was even less than that seen earlier in the session and 10's stayed under 1.96, finally moving quickly back to 1.94 as early domestic trading got underway.

10's are currently at 1.941. S&P futures are 1 pt off yesterday's 4pm levels after treading only about 4 points higher overnight and Fannie 3.0s opened 4 ticks higher at 103-14. International Trade is coming up at 8:30am and expected to show a slightly narrowing trade gap of $46 bln vs last month's $48.7 bln. After that, Wholesale Inventories at 10am is the only remaining report of the morning.
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.

Nate Miller  :  "REPRICE: 10:25 AM - GMAC Worse"
Matthew Graham  :  "RTRS- U.S. DEC WHOLESALE SALES UNCHANGED (CONSENSUS +0.6 PCT) VS NOV +2.2 PCT (PREV +2.3 PCT) "
Matthew Graham  :  "RTRS- U.S. DEC WHOLESALE INVENTORIES -0.1 PCT (CONSENSUS +0.4 PCT) VS NOV +0.4 PCT (PREV +0.6 PCT) "
Jude Bridwell  :  "can only hope for wholesale inventory report to be in the negative to help slow the train, but even if it is, there's probably going to be a nice spin to it"
Christopher Stevens  :  "interesting to see the 10YR hold at 1.97 right now. I would have thought 2.0 woould be tested with teh s&p at these levels"
Matt Hodges  :  "WF and BBT already priced... figure an early RP"
Matthew Graham  :  "that could precipitate some more badness from the "risk-on/risk-off" perspective"
Matthew Graham  :  "stocks making a run for 1510. S&P futures... just hit it actually. Just saw the highest tick of the past 5 years."
Christopher Stevens  :  "MG's morning update nailed it"
Matthew Graham  :  "looks exacerbated by some big Treasury-specific flows. Possible corporate rate-lock selling and/or asset allocation trades at stock open. Earlier short-covering also helped 10's be perhaps lower than they wanted to be. "
Jude Bridwell  :  "amazing how quick we can go red and how slow the green comes"
Matthew Graham  :  "cue badness"
Matthew Graham  :  "buyers and sellers are firing shots at each other from farther away this morning. The snow-storm related illiquidity is even more pronounced than I thought it would be."
Matthew Graham  :  "np, me too. The taps on the floor at 1.937 have been fairly regular overnight and into this morning (same level as the 11:30am floor yesterday). We poked only briefly to lower yields yesterday and to a much lesser extent, overnight, So I'd see that as the first challenge to any moves into better territory for a more serious test of the mid 1.92's. "
Matthew Graham  :  "Trade gap typically isn't that big of a mover. I would think lower gap, stronger economy, worse for bonds, but so far the reaction is positive, so we may be paying more attention to the reasonably-sized late-day rally in German Bunds which is currently bringing yields back in line with their opening lows. Looks like US 10's have some intraday resistance at 1.935"
Anthony Hicks  :  "mg, good news or bad news for bonds?"
Matthew Graham  :  "RTRS- US 2012 TRADE DEFICIT $540.4 BLN VS 2011 $559.9 BLN"
Matthew Graham  :  "RTRS- US DEC PETROLEUM TRADE DEFICIT AT $18.7 BLN, LOWEST SINCE AUG 2009; CRUDE IMPORTS 223 MLN BBLS, LOWEST SINCE FEB 1997 "
Matthew Graham  :  "RTRS- U.S.-CHINA DEC TRADE DEFICIT $24.5 BLN VS NOV DEFICIT $29.0 BLN "
Matthew Graham  :  "RTRS - US DEC GOODS DEFICIT $56.20 BLN, NARROWEST SINCE DEC 2010; SERVICES SURPLUS RECORD HIGH $17.66 BLN "
Matthew Graham  :  "RTRS- US DEC EXPORTS +2.1 PCT VS NOV +1.0 PCT, IMPORTS -2.7 PCT VS NOV +3.7 PCT "
Matthew Graham  :  "RTRS - US DEC TRADE DEFICIT $38.54 BLN, NARROWEST GAP SINCE JAN 2010 (CONSENSUS $46.0 BLN) VS NOV DEFICIT $48.61 BLN (PREV $48.73 BLN) "
Matt Hodges  :  "i suspect that any tests of 1.93 will be futile today, given the NE shut down and likely low volume."
MMNJ  :  "I'm in Essex County, NJ (25 miles from NYC) -- some are predicting 18-24" starting around 5 or 6 pm"
Matt Hodges  :  "stay safe, TQuann and Jeff.... I understand in Boston, they want everyone off the roads by noon"
Thomas Quann  :  "GM...yeah, we are going to get dumped on today. (snow that is)"
Jeff Anderson  :  "GM, all. I expect to see white all day. As in about 2 feet of the white stuff. Cripes. Help a brother out with some MBS green, at least."
Oliver S. Orlicki  :  "Green so far. Lets see if we can hold throughout the day."
Jon  :  "http://www.bloomberg.com/news/2013-02-08/treasuries-head-for-biggest-weekly-gain-in-2013.html"
Jon  :  "“Yields may decline,” Nakamura said. “The negative output gap continues.” Ten-year rates may fall to a record low 1 percent this year, he said. "

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