MBS Commentary

MBS CLOSE: Tumultuous Week Sees MBS Gain, Tsy's Lose

2009-11-06T23:05:00Z

In a week that promised to be eventful, MBS played the volatility role with the rest of the market, but left it's benchmark's in the dust when all was said and done. The measure of the secondary MBS market that takes into consideration the prepayment speed weighted yields as well as the production mix of MBS volume and expresses that notional yield at parity fell to 4.258 (that's secondary market current coupon, btw...). With the 10yr yield ringing the 3.5 bell right on the nose, that brought spreads between MBS and Tsy's to an eye-wateringly tight 75.9bps! They started the week at an already tight 87.9bps... Though I could try, I'm not sure there's much I could do to convey just how tight these spreads are... Well, I guess a chart might do... This is the current coupon...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS AFTERNOON: Like It Never Happened...

2009-11-06T20:32:00Z

In breaking news, it has been determined that today's NFP report was all an elaborate hoax that was never intended to have any effect on the markets beyond today. Or at least that's how the headline could read at the top of the list of "things that would not surprise us." What do I mean? Nothing more than this: After all the sturm and drang of AM volatility, the market continues in the exact same direction suggested by it's previous trends, which would have been for a reversal at 3.56 (yesterday) and a continuation of the rally into today depositing us somewhere in the neighborhood of 3.5... For MBS, just an extension of previous trends as well (yesterday we warned against perceiving the rally in MBS as an indication of reversing downtrends from the beginning of the week...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS MORNING: MBS Settling Into The Green Groove

2009-11-06T16:29:00Z

We'd expect the wake of a much-anticipated NFP print to be volatile... That assumption isn't really a big leap of faith for most market watchers, and indeed that's what we're seeing. But as the volatility decreases, we're seeing suggestions of both stability and correction. Traders are preparing to cash in... So should you... Let's discuss the chart for a moment... Generally, today is a green one for MBS. I wouldn't even pay much mind to the outlying levels following NFP as those are merely the more violent death throws of the volatility that almost always peaks and begins to wane on the printing of this report. 101-00 looks reasonably supportive in a technical sense, and of course it always carries the "round number" psychological impact as well. Even...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS ALERT: Falling From the Highs to the Lows

2009-11-06T14:46:00Z

Looks like the short base has not be taken out in 10s yet... The 10yr note yield just rose to 3.54%. Hopefully we get some short covering there and a reversal. Unfortunately this is having negative effects on "rate sheet influential" MBS coupons. The FN 4.0 is now -0-01 at 98-12 and the FN 4.5 is trading -0-03 at 100-31 after hitting an intraday high of 101-16. Look how steep the yield curve is now...this is getting rediculous. Buy the curve already! IF YOUR LENDER ALREADY PUBLISHED PRICING, A REPRICE FOR THE WORSE MAY OCCUR 10:15 UPDATE: The FN 4.0 is now +0-03 at 98-16 yielding 4.156%. The FN 4.5 has recovered from the lows of the day and is now trading +0-03 at 101-05 yielding 4.356%. The secondary market current coupon is 4.276%. The current coupon is +75/10yr TSY and +58/10yr...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS OPEN: Rates RALLY After Jobs Data

2009-11-06T13:33:00Z

Oct Non-farm Payrolls Worse than Expected at -190,000 vs. consensus -175,000 vs. Sept -219,000 (previously -263,000) Unemployment Rate: 10.2% vs. consensus 9.9% vs. Sept 9.8% (previously 9.8%). Highest unemployment rate since 10.2% in April 1983 August Non-farm payrolls revised to -154,000 from -201,000. July unrevised at -304,000 Average hourly earnings +0.3% vs. consensus +0.1% vs. Sept +0.1%, to $18.72 vs. Sept $18.67. Year-on-year average hourly earnings +2.4 % Average work week 33.0 hours vs. consensus 33.1 vs. Sept 33.0. Aggregate weekly hours index -0.2 % vs. Sept -0.5 % Below are the market's reactions to the data. Dont get comfortable yet, the market's initial reaction is not the best indicator of the day ahead. Give this a few minutes to set in... The 10yr.... The FN 4.5....(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS CLOSE: What The Curve Says About The "Bond" Market

2009-11-05T22:34:00Z

TOMORROW: NFP at 830AM Wholesale Trade at 10AM Consumer Credit at 3pm Ok... Of course anything can happen tomorrow, and probably will, but at some point in the reasonably near future, a "quantum of solace" should show up to the party... Not talking about your buddy bringing over their "Bond collection," but rather, our "collection of Bond" metrics is suggesting it's almost time to call our much anticipated FLATTENER (short term yields and long term yields become more similar) in as a missing person. What does all that greek mean? If short term and long term yields move closer together, either the long end goes lower, the short end goes higher, or something in between... And although there's plenty of overhead room in short yields that can push the 10yr...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS AFTERNOON: Fixed Income Winding Down As NFP Approaches

2009-11-05T20:31:00Z

The price action in the 10yr is like a coiling cobra at the moment. A range beset by yesterday's 3.56 snd this AM's 3.515 has gradually narrowed into what must consequently be wherever it is the market wants to be ahead of the NFP report... The cobra's extended body gradually occupies a smaller and smaller footprint as it prepares to strike out... Either direction is possible... It's also possible that he may not see a sufficient opportunity to strike and the movements that undo the coiled position will be less directional... Regardless of that snake in the grass, the supportive-week for MBS has been decidely, well, supportive... As AQ mentioned earlier, we're seeing an uncommon occurrence in that MBS are extending whereas the yield curve is steepening. In plainer and simpler...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS LUNCH: Reprices for the Better Reported

2009-11-05T19:04:00Z

The 10yr TSY note continues to extend yesterday's range (wait and see mode. READ MBS OPEN )..... Meanwhile...."rate sheet influential" MBS coupons continue to out-peform their benchmark big brothers. In a thinly traded market, the FN 4.0 is +0-08 at 98-14 yielding 4.162% and the FN 4.5 is +0-06 at 101-02 yielding 4.371%. The secondary market current coupon is 4.298%. The current coupon yield is +76/10yr TSY and +60/10yr SWAP. As you can see in the chart below, FN 4.5 prices have recovered all their pre/post-FOMC price losses. Update on the shape of the yield curve. 2s/10s are steeper again! Now at 264 basis points.... If you are wondering...isn't it odd that the yield curve is steeper and "rate sheet influential" MBS coupon yields continue to outperform their benchmarks...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS MORNING: Explaining Yield Spreads and the Curve

2009-11-05T17:26:00Z

Lets do a quick recap of yield spreads... Debt issued by the US Government (Treasury bills, notes, and bonds) is considered to be the highest credit quality....also known as 'Risk Free'. These 'RISK FREE' securities (TSY bills, notes, and bonds) are the foundation for all other interest rates. This is why Treasury securities are called 'benchmarks'. All other debt issued is considered to be less quality than US Treasuries. To compensate for higher risk of investing, because other debt is considered lower quality than US Treasuries, all other debt trades at a premium over the 'risk free' rate. This is referred to as a 'yield spread' over a comparable benchmark. Comparable means: of similar maturity. For example you would compare the returns of a 10yr municipal...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS OPEN: Rates Sideways After Data. Wait and See Mode...

2009-11-05T14:24:00Z

Recap of Yesterday... ADP Employment Report: -203,000 jobs in October vs. revised for better -277,000 cuts in September. October read better than expected. Treasury Refunding Announcment: $81bn in TSY supply next week. $40bn 3yr notes, $25bn 10s, and $16bn 30s. 10yr note sales $1bn more than expected..TSY extending duration of portfolio Bankruptcy filings +8.9% in September vs. +4.1% in August. +27.9% year over year FOMC makes a few changes to statement, does not alter verbiage "for an extended period". I wrote lengthy discussion on what the text is telling us and how it relates to mortgage rates. READ MORE Senate Passes Homebuyer Tax Credit Extension 98-0. Goes to House for vote. READ MORE FHA delayes the release of their internal audit...says inaccuracies in study's econometric...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS CLOSE: Considerations Heading into the Employment Report

2009-11-04T22:48:00Z

The MBS AFTERNOON commentary was fairly robust. And you also have the write up on the Fed Announcement to read, so we'll keep the words to a minimum and give you some charts to consider going into the rest of the week. Two ways to look at things at the moment... 1. You could consider the progressively higher tsy yields this week the formation of a trend supported by incrementally higher technical levels... OR 2. You could consider the higher yields the "ratcheting" up of incrementally higher technical levels that is waiting either for confirmation or a release of it's kinetic energy by NFP, et. al... To wit, the following chart: This means SOMETHING... If anyone figures it out, let me know... It might also mean something that the S&P seems cautious at best (spineless at...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS AFTERNOON: Volatility Dying Down As Bonds Improve

2009-11-04T20:33:00Z

Following the FOMC announcement, which was the quintessence of "as expected," volatility understandably ticked up. Stocks moved both higher and lower in an expanding range whereas fixed income mostly worsened in an expanding range. MBS capitalized on the weakness with further tightening. For reference to our ongoing tracking of the current coupon yield and its spread to various benchmarks, the MBS current coupon rose slightly to 4.352. This TIGHTENED the spread to the 10yr from around 84 bps to 82.75 bps. That's very tight stuff, and the weakening in fixed income was likely the only environment that would have allowed tightening from the already tight 84 bps. In general, MBS yields are more likely to tighten into selling and widen into improvments. But the 10yr isn't the only...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS ALERT: Rates Higher After FOMC Statement

2009-11-04T19:21:00Z

The FOMC Statement has been released... reaffirms promise to keep rates exceptionally low for an extended period benchmark rate to remain in zero to 0.25 pct range conditions include low rates of resource use, subdued inflation trends, stable expectations says to buy $175 bln of agency debt, less than previously announced $200 bln maximum says reduced amount of agency debt purchases reflects limited availability of agency debt says economic activity has continued to pick up says conditions in financial markets roughly unchanged since last meeting household spending appears to be expanding but remains constrained by job losses, tight credit businesses still cutting back on investment, staffing but at slower pace businesses making progress in bringing inventory stocks into better alignment with...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS LUNCH: Pre-FOMC Statement Market Update

2009-11-04T18:38:00Z

Craig, Looking at this in an historical context, in previous economic downturns when the labor market was a casualty, the FOMC did not raise the Fed Funds rate until at least six months after the labor market improved. Although Fed policymakers, economists, traders, and market watchers in general all have varying opinions about the shape of the recovery (V, W, L, U, SQUARE ROOT), there is one thing everyone's forecast has in common.. UNCERTAINTY! No one knows whether or not the 'improvements' have been a function of record low Fed Funds policy and government stimulus. Jobs are still being cut, the labor market has yet to prove it is stable and ready for job creation.... We feel confident that Ben Bernanke and his circle of highly educated economists are well aware of this and therefore...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS MORNING: MBS Break Even, Crushing Treasuries

2009-11-04T16:33:00Z

In other words, MBS are a trading a tick higher or lower than unchanged on the day. That's 100-16 on the 4.5. Tsy's meanwhile are languishing, with the 10yr down 11 ticks, pushing the yield up to 3.50. The 30yr bond is down 21 ticks, pushing the yield up to 4.370. As far as MBS and the Tsy market are concerned, when one is unchanged on the day and the other is noticeably higher or lower, it allows us (usually) to draw conclusions about movements in spread. The one thing you'd want to be cautious about would be whether or not there were fundamental changes in the prepayment expectations of MBS, but in the absence of that, you can generally assume the following. If you see MBS holding steady like it is today and treasury yields are rising, it's normally an indication of spread...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.