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You are viewing Micro News from Wednesday, Jul 9, 2014 - View all recent Micro News
  • 7/9/14
    Bond Markets Reverse Course; Rallying After Post-FOMC Stutter Step

    Quite a stark reversal is underway, at least in the context of a fairly narrow range.  Immediately following the FOMC Minutes release, bond markets extended previous weakness just slightly.  Thirteen minute later, trading levels were still in line with pre-FOMC levels, near the weakest of the day.

    But since then, we've been rallying.  In fact, MBS and Treasuries are both back into positive territory on the day.  The only salient justification for this lies with the only salient change between this Fed meeting and the last.

    Here's an excerpt from the MBS Live alert that followed the last FOMC Minutes:

    There were no glaring surprises in the FOMC Minutes (which provide a
    more detailed account of the meeting that took place over 3 weeks ago),
    though there was mention of a discussion regarding how the Fed should
    reinvest its asset holdings.

    With that in mind, it's important to note that markets were very
    interested in Dudley's comments yesterday regarding a change-up in the
    reinvestment game-plan (i.e. the Fed should not stop reinvesting before
    they raise rates).  That's an MBS-positive factor that is missing from
    the Minutes.  In other words, markets "bought the rumor" to some extent
    yesterday and are "selling the news" a bit now.

    Today's instance of the Minutes now specifically notes:

    " It was noted that, in the staff's models, making a change to the
    Committee's reinvestment policy prior to the liftoff of the federal
    funds rate, at the time of liftoff, or sometime thereafter would be
    expected to have only limited implications for macroeconomic outcomes,
    the Committee's statutory objectives, or remittances to the Treasury.
    Many participants agreed that ending reinvestments at or after the time
    of liftoff would be best, with most of these participants preferring to
    end them after liftoff." -July 9 Minutes

    That's just a small portion of the reinvestment discussion this time around.  Last time, this was the extent of it: 

    "A number of participants suggested that it would be useful to provide
    additional information regarding how long the Committee would continue
    its policy of rolling over maturing Treasury securities at auction and
    reinvesting principal payments on all agency debt and agency
    mortgage-backed securities in agency mortgage-backed securities."
    - May 21 Minutes

    In other words, that "rumor" that was bought, and subsequently sold at the last Minutes release is now eligible to be bought again.  It took markets a few 'minutes' (pun not intended) to realize it and to get over the fact that asset purchases are likely to end at the October meeting.

    Additionally, ECB president Draghi was out at 2:30pm with generally supportive comments for bond markets.  The net effect has simply been a return to yesterday's strongest levels both in MBS and Treasuries. 

    Fannie 3.5s are up 1 tick on the day at 102-12 and 10yr yields are down just under 1bp at 2.559

    Category: MBS, UPDATE
    Share:   
  • 7/9/14
    Despite a moderate amount of weakness built in to bond...
    MBS Updates are a service provided to MBS Live! subscribers only.
    Learn More | Start a Free Trial | View MBS Prices
    Category: MBS, alert
    Share:   
  • 7/9/14
    Bond Markets Slightly Weaker Overnight; Fighting to Hold Ground

    Treasuries have given up a small portion of yesterday's gains and MBS have given back nearly all of theirs.  That highlights the 2-day phenomenon of MBS losing ground versus Treasuries, which is a bit alarming considering the opposite is normally the case heading into the roll (tomorrow in this case).

    It's all the more alarming that it's occurring on a 10yr Treasury auction day.  Those normally coincide with Treasuries underperforming MBS.  Market participants tend to build in a concession (higher yields and lower prices) leading up to an auction.

    In fact, that sort of concession is very likely one of the factors behind today's weakness.  It's just that MBS are finding reason to be incrementally weaker.  The reason, in this case, is the official monthly prepayment report that came out on Monday.  There is often an effect on MBS's relative performance vs Treasuries following that report, especially if speeds come in faster/slower than expected ("speeds" refers to how quickly a particular pool of MBS is being paid off, which is one of the key variables in MBS valuation).

    Beyond the auction concession, equities markets are heading the other direction today.  Yesterday's stock losses correlated with bond gains.  Both reversed course at the same time yesterday and both are heading in the same direction today (stock prices and bond yields, that is).

    MBS are bouncing along 2-day lows at the moment, down 5 ticks at 102-06.  Treasuries came into the domestic session at their weakest levels of the day, recovered slightly, and are now fighting a return to those weak levels ahead of this afternoon's 10yr auction.

    Category: MBS, UPDATE
    Share:   
 
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  • 7/9/14

    Quite a stark reversal is underway, at least in the context of a fairly narrow range.  Immediately following the FOMC Minutes release, bond markets extended previous weakness just slightly.  Thirteen minute later, trading levels were still in line with pre-FOMC levels, near the weakest of the day.

    But since then, we've been rallying.  In fact, MBS and Treasuries are both back into positive territory on the day.  The only salient justification for this lies with the only salient change between this Fed meeting and the last.

    Here's an excerpt from the MBS Live alert that followed the last FOMC Minutes:

    There were no glaring surprises in the FOMC Minutes (which provide a
    more detailed account of the meeting that took place over 3 weeks ago),
    though there was mention of a discussion regarding how the Fed should
    reinvest its asset holdings.

    With that in mind, it's important to note that markets were very
    interested in Dudley's comments yesterday regarding a change-up in the
    reinvestment game-plan (i.e. the Fed should not stop reinvesting before
    they raise rates).  That's an MBS-positive factor that is missing from
    the Minutes.  In other words, markets "bought the rumor" to some extent
    yesterday and are "selling the news" a bit now.

    Today's instance of the Minutes now specifically notes:

    " It was noted that, in the staff's models, making a change to the
    Committee's reinvestment policy prior to the liftoff of the federal
    funds rate, at the time of liftoff, or sometime thereafter would be
    expected to have only limited implications for macroeconomic outcomes,
    the Committee's statutory objectives, or remittances to the Treasury.
    Many participants agreed that ending reinvestments at or after the time
    of liftoff would be best, with most of these participants preferring to
    end them after liftoff." -July 9 Minutes

    That's just a small portion of the reinvestment discussion this time around.  Last time, this was the extent of it: 

    "A number of participants suggested that it would be useful to provide
    additional information regarding how long the Committee would continue
    its policy of rolling over maturing Treasury securities at auction and
    reinvesting principal payments on all agency debt and agency
    mortgage-backed securities in agency mortgage-backed securities."
    - May 21 Minutes

    In other words, that "rumor" that was bought, and subsequently sold at the last Minutes release is now eligible to be bought again.  It took markets a few 'minutes' (pun not intended) to realize it and to get over the fact that asset purchases are likely to end at the October meeting.

    Additionally, ECB president Draghi was out at 2:30pm with generally supportive comments for bond markets.  The net effect has simply been a return to yesterday's strongest levels both in MBS and Treasuries. 

    Fannie 3.5s are up 1 tick on the day at 102-12 and 10yr yields are down just under 1bp at 2.559

    Category: MBS, UPDATE
    Share:   
  • 7/9/14
    Despite a moderate amount of weakness built in to bond...
    MBS Updates are a service provided to MBS Live! subscribers only.
    Learn More | Start a Free Trial | View MBS Prices
    Category: MBS, alert
    Share:   
  • 7/9/14

    Treasuries have given up a small portion of yesterday's gains and MBS have given back nearly all of theirs.  That highlights the 2-day phenomenon of MBS losing ground versus Treasuries, which is a bit alarming considering the opposite is normally the case heading into the roll (tomorrow in this case).

    It's all the more alarming that it's occurring on a 10yr Treasury auction day.  Those normally coincide with Treasuries underperforming MBS.  Market participants tend to build in a concession (higher yields and lower prices) leading up to an auction.

    In fact, that sort of concession is very likely one of the factors behind today's weakness.  It's just that MBS are finding reason to be incrementally weaker.  The reason, in this case, is the official monthly prepayment report that came out on Monday.  There is often an effect on MBS's relative performance vs Treasuries following that report, especially if speeds come in faster/slower than expected ("speeds" refers to how quickly a particular pool of MBS is being paid off, which is one of the key variables in MBS valuation).

    Beyond the auction concession, equities markets are heading the other direction today.  Yesterday's stock losses correlated with bond gains.  Both reversed course at the same time yesterday and both are heading in the same direction today (stock prices and bond yields, that is).

    MBS are bouncing along 2-day lows at the moment, down 5 ticks at 102-06.  Treasuries came into the domestic session at their weakest levels of the day, recovered slightly, and are now fighting a return to those weak levels ahead of this afternoon's 10yr auction.

    Category: MBS, UPDATE
    Share:   
 
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