MBS Commentary

MBS CLOSE: Extremely Flat, Range-Bound Week

Matthew Graham — Fri, 20 Nov 2009 22:01:00 GMT

Despite the 4 tick improvement on the day that leaves MBS just about as close to all time highs as we could ask for, the lack of excitement this week is a bit of a let down. Sure, there was plenty of chopatility earlier in the week in MBS, but not only was it mostly confined to the range, prices actually ended exactly where they started on Monday! At least the boring and range-bound nature of the week made for plenty of predictability as the only real technical levels worthy of mention played important roles throughout the week. 101-21 became eerily supportive as the week progressed. and 101-27 mentioned as a pivot point on Monday and Tuesday maintained it's technical significance as resistance by week's end. In tsy's, the story was clearly about 3.31 and 3.38. (3.31 is an intraday...(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: Grinding to the Right

Adam Quinones — Fri, 20 Nov 2009 21:28:00 GMT

Its 430 on a Friday afternoon. The market is resting after a week's worth of grinding to the right. (Note sarcasm.) It was exciting when the week began...but it sure did fizzle out into the close. Everything we watch turned a profit this week. We hope you followed the crowd and booked a few extra bps yourself. Gobble Gobble. I can smell the mashed potatoes.... Enjoy the weekend PS. Smash someone up Tucker. go 44...(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: Uneventfully Coasting Into The Weekend

Matthew Graham — Fri, 20 Nov 2009 19:15:00 GMT

With absolutely no exaggeration, all but one, maybe two of the times I've looked at my screens before writing this week MBS have been between -2 and +2 ticks on the day while changes in tsy's have been more pronounced. Same story today, at least on a price level, as 4.5's are up 2 ticks to 101-23 whereas 10's are down 6 ticks, bringing the yield up to 3.362. Neither of those levels are especially interesting as they both lie above levels that have supported 99% of the trade this week. For MBS, the level is obviously 101-21, which has received more than its fair share of mention this week, and likely needs no further introduction. And though we haven't seen much of it this week, the 3.38 lvl in tsys is equally significant. It just draws more of it's credibility from weeks...(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: Reminder of Rates Reality

Adam Quinones — Fri, 20 Nov 2009 16:23:00 GMT

Much of our analysis this week has focused on the technical dynamics of range limits and the interconnected relationship between the market's perception of fundamentals and trader's ongoing short term profit churning positional tactics. While some of the explanatory logic we have provided was mere exploratory reasoning based on the speculative maneuvering and strategery (been waiting to use that one) of performance driven traders, we have continued to rely upon the same concepts and indicators that have driven price action for the majority of 2009: the Federal Reserve's consistent presence in the agency MBS market and the bond market's ongoing independence and outperformance. An unwavering reliance on these themes has served as a stable foundation with which we build our directional...(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: Choppy Benchmark Prices. Sideways MBS Movement

Adam Quinones — Fri, 20 Nov 2009 14:30:00 GMT

Got this email update from eFannieMae last night.... Fannie Mae lanza nuevo HomePath.com en español, con el propósito de ayudar a más hispanos a adquirir su vivienda. Herramientas interactivas e información diseñada para guiar a los potenciales propietarios a través del proceso de adquisición de una vivienda y prevenir una ejecución hipotecaria Fannie Mae Launches New HomePath.com in Spanish Aimed at Helping More Hispanics Buy Homes. Interactive Tools and Information Designed to Guide Potential Homeowners Through Homebuying Process and Prevent Foreclosure I wonder how many homes went/will go into foreclosure because the borrower wasn't a citizen... Banco Popular anyone? Recap of Yesterday Jobless Claims: 505k vs. 505k expected. Unchanged...(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: Range Holding Makes For Boring Day

Matthew Graham — Thu, 19 Nov 2009 22:00:00 GMT

Earlier in the day we discussed movement in MBS prices that brought 4.5's to their lowest levels of the session, but we mentioned some support for MBS as well as some support for tsy yields that had been weakening at the same time. By closing time, those ranges identified much earlier in the day held up, carrying us into tomorrow, a data-free options expirations Friday with little to no suggestion for directionality. Turns out that 101-21 was a pretty solid area for 4.5 support. And in 10's, despite a couple exploratory movements toward 3.36, 10's finished in better territory vs. their support. Volume was evenly distributed and nothing to write home about as we were mostly on par with yesterday's levels. To reiterate the sense of uncertainty going into tomorrow, today did nothing...(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: Flat on the Day With Room to Move Lower

Adam Quinones — Thu, 19 Nov 2009 20:29:00 GMT

Heading into the close, the FN 4.0 is trading +0-02 at 99-09 yielding 4.078% and the FN 4.5 is +0-02 at 101-24 yielding 4.286%. The secondary market current coupon (CC) is 4.13%. The CC is +78/10yr TSY and +67/10yr swap. As you can see in the chart below, after prices fell early in the week, "rate sheet influential" MBS prices haven't made much progress in either direction with most of the price action occurring between 101-26 and 101-20. This should continue into today's close. Again...lock!...(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: Lows Of The Day, But Still Within The Range

Matthew Graham — Thu, 19 Nov 2009 18:45:00 GMT

This is one of those obligatory alerts where price action in context doesn't justify an alert, but MBS prices have touched their lows of the day. In addition tsy's have broken out of their trend of improvement on the day with the 10yr backing up 3.35. Will there be reprices? Tough to say, considering the nice, flat resistance going back to yesterday at 11am. That coincides with some internal support at just over 3.35 in tsys. So personally, I wouldn't be rushing to lock anything that wasn't locked already. However, given the lock bias of the hedge ratio, that might constitute a different swath of your pipeline... If you can risk it, roll with it and wait to see if 3.35 tsy's break or 101-21 MBS breaks. Some lenders will reprice for the worse, but many will not (not unless...(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: Bonds Rally Leading Indicators, Geithner, and Supply

Matthew Graham — Thu, 19 Nov 2009 16:32:00 GMT

Thursday's tend to be data-rich and today is no exception. After the "with us as always" jobless claims at 830, a concentrated dose of data and headlines hit at 10am. In the ongoing court case of Reality v. Stable Economic Recovery , Philly Fed survey served as chief counsel for the defense, topping expectations of 12.0 with a 16.7 reading. That was up from 11.5 reading in the prior month but did little to help already plummeting stocks. Philly Fed results did, however, give pause the the rally in bonds, but after a minor retracement, the LEI reading combined with the soothing words from Timayyy to bring bonds back to their strongest points of the past 2 days. Leading indicators printed down a tenth from from the .4, and the 0.3 actual was significantly lower than the previous...(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: Range Still Containing Price Action

Adam Quinones — Thu, 19 Nov 2009 14:29:00 GMT

Recap of Yesterday... Housing Starts fell 10.6% in October to lowest level in six months. Led by a 6.8% decline in construction of single-family dwellings and 34.6% drop in multi-family starts. Building Permits, the more important, forward looking housing market indicator, fell by 0.2%. Not too bad considering the tax credit extension was still in limbo. HERE is commentary on the data Consumer Price Index (CPI): consumer level inflation rose 0.3% in October vs. +0.2% in September. Slightly above the market's expectations. When stripping out food and energy prices, core consumer prices were 0.2% higher in October, the same increase was seen in September. Year over year, core prices are up 1.7%. Fed President Bullard, who is not currently an FOMC voter but will be next year, caused a little...(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: Bad Technical Moon On The Rise

Matthew Graham — Wed, 18 Nov 2009 23:09:00 GMT

It hasn't received as much air time these days, but the range trade and technical price levels are still very much in play. That has to do with the slightly less paradoxical directionality these days. Markets have tended to move in the direction suggested by data to a much greater extent than the summer months that saw the release of our hit single "Day Trader's Paradise..." Mortgages started off the day significantly weaker to tsy but rallied a lot harder into the noon hour. The highs of the day coincided with the upper limit of the trend channel we've been riding all week. After bouncing shortly thereafter at 101-27, weakness ensued through the close but never managing to bring prices below this AM's lows or yesterday's lows. In fact, we're only 2 ticks off...(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: Testing Limits of Range

Adam Quinones — Wed, 18 Nov 2009 21:01:00 GMT

Heeeeeeeeeading into the 5 pm marking period... The FN 4.0 is trading -0-04 at 99-09 yielding 4.084% and the FN 4.5 is bid -0-02 at 101-23 yielding 4.294%. The secondary market current coupon is 4.137%. The CC is +77/10yr TSY and +67/10yr swap. It has been a choppy day... 10s went out selling with most of the flows taking place early is the session within the 119-16 to 119-21 price range. This is where most of the trading volume was "accummulated" and "distributed". This is our 3.32 to 3.37 range. See chart below. Range intact, but we are testing it's lower limits as we head towards option expiration on Friday. Lock Bias Still On.... Anyone see the changes to THIS? Consistent with the continued evolution of the program's operation, the New York Fed will begin in...(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 (alert): Major Steepening Of Yield Curve

Matthew Graham — Wed, 18 Nov 2009 18:54:00 GMT

Rather than dismiss the trend of lower yields in tsy's as more likely to stop at 3.32, perhaps we should have focused our analysis on what yields might do on the upside! For now, however, both MBS and the 10yr movements are simple if not elegant examples of the technical levels we discussed this AM. You get resistance from the downtrend at the red circle and resistance at 101-27 at the white circle... Tsy's are worse off today... In fact, yields are approaching the unfriendly side of their trend... We watch, wait, and place bets on where the next bounce will be... I think we break upside support in 10yrs, but stay under 3.38+ support. Any takers? (just opinion, you're free to disagree) Any other bets? Oh yeah, and MBS'll probably have to follow suit to some extent meaning some...(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: Weekly Picture Worth 101-27 Words

Matthew Graham — Wed, 18 Nov 2009 16:40:00 GMT

Despite MBS performing slightly better than tsy's at the moment, the general theme of the week has been to hold steady while tsy's rally. The 3 day chart of this week's price movements so far does an amazing job of conveying this. We have the constantly revisited internal trendline (also the weekly MEAN, also the weekly MEDIAN! Could it be important?) of 101-27. Looking at that perpetual search for the center in the context of generally bearish price movements on the week and the generally bullish movements in tsys, the picture rapidly comes into focus. But our friend Astro only need worry about MBS to whatever extent spreads continue to widen as the downward sloping trend channel is a product almost exclusively of that widening and not some broader weakness in bonds (as you'll...(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: Choppy Price Action. Range Moderating Directionality

Adam Quinones — Wed, 18 Nov 2009 14:30:00 GMT

Happy Hump Day Recap of Yesterday October Producer Price Index +0.3%. Core Prices -0.6%---much weaker than expected. Strength: Energy +1.6%, Food +1.6%. Crude goods +5.4%. Weakness: +0.3. Cars -0.5%, light trucks -5.2%, computers -0.3%. Rising commodity prices to blame for higher raw material costs. September TIC Data: strong foreign buying of US Treasuries +$44.7 billion in September. That is huge increase. MBS and Agency debt -$1.8 billion. That is small decrease. Overall a good read on demand for US debt, Treasuries clearly preferred over MBS. China was the biggest supporter of TSYs...taking in over $15 billion. Oct Industrial Production: +0.1% vs. +0.6% in Sept. Worse than +0.4% consensus. Autos -1.7% vs. +8.1% in Sept Oct Capacity Utilization at 70.7, highest since January. NAHB expects...(read more)

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