MBS Commentary

Rates Higher as Trading Session Gets Off to Slow Start

Adam Quinones — Fri, 19 Mar 2010 12:33:00 GMT

Good Morning. How in the world does Georgetown lose in round 1?!?!?!? They aren't the only ones heading back to class early though. 13 seed Murray State beat 4 seed Vandy. Marquette, who was a five seed, couldn't get passed no.11 Washington. Notre Dame, the six seed lost to Old Dominion. Meanwhile, Nova just barely pulled out a nail biter against Robert Morris and New Mexico, who had their second lowest point total on the season, found a way to squeak one out against 14 seed Montana. Bracketology gets interesting from here...especially with the Hoyas down and out. Did you call any of these upsets? What shocker did you forecast for day 2? The econ calendar is quiet today, making secretive tourney watching that much easier...COUGH COUGH HERE IS THE LINK COUGH COUGH Both benchmark 10s...(read more)

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Winning Streak Snaps As MBS Close At The Lows

Matthew Graham — Thu, 18 Mar 2010 21:09:00 GMT

Going out at lows of the day with 4.5's down 3 ticks to 101-00 10yr Tsy at high yield of day just under 3.68 Moderate gains in Dow and Nasdaq, S&P unchanged Big raft of data + Treasury Supply was just a bit too bearish for bonds today Still... Not a huge affair in terms of volume. MBS about half of normal. Kind of a medium term chart tonight but a lot going on with MBS trends, so the discussion will be almost exclusively on the top section of the following chart: Many many colors in the MBS chart, eh? Here's what they are: WHITE LINE: can either be thought of as one of two things: pretty dang close to 101-00 or an inflection point over the past two weeks. Both are accurate. It's moderately supportive vs. the pessimism that the next two sets of lines seem to suggest YELLOW LINES...(read more)

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MBS Finding Support at 101-00

Matthew Graham — Thu, 18 Mar 2010 19:27:00 GMT

4.5's down 2 ticks on the day at 101-01 10yr tsy down 8 ticks, bringing yield up to 3.67 S&P down a point, Dow up just over 30 points. Current levels in bonds are at or slightly better than well tested support on the day With no data, and quadruple witching, tomorrow is uncertain. After moving weaker all day in trend channels, MBS and treasuries look to be finding some support at recent lows. Whether that's merely a stop to today's bleeding or a broader consolidation that will reverse course tomorrow remains unknown. What is known is that reprices for the worse have already happened and in some cases may still happen, but the market-based motivations for them are fading for the moment. If you didn't lock last night and find yourself floating right now, tomorrow is too uncertain...(read more)

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Rumors Keep Markets from Making Another Move. Rates Maintain Weakness. Reprices Possible

Adam Quinones — Thu, 18 Mar 2010 16:43:00 GMT

There is a fair amount of chatter in the marketplace that the Fed is planning on hiking the discount rate again. Remember the Fed bumped the discount rate on February 18, from 0.50% to 0.75%...which caused a lot of commotion in the marketplace in the day's following the announcement. If the Fed does indeed order the N.Y. desk to make this policy adjustment, it doesn't mean much fundamentally because the banking system is still super liquid/flush with excess reserves. We discussed the economics of the discount rate hike in THIS BLOG POST . Re-reading it will give you an edge when clients come calling, nervously interrogating you about how this move will affect their rate. The rumor is affecting the general sentiment of the marketplace though.... Even though the IMF is said to be standing...(read more)

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ALERT: Treasury Supply Announced. Benchmark Rates Rise. MBS Prices Fall Fast

Adam Quinones — Thu, 18 Mar 2010 15:00:00 GMT

Treasury has announced the terms of next week's government fundraiser. As expected, supply sizes were all unchanged from the previous auctions. A total of $118 billion in TSY notes will be sold. Here is the schedule: Tuesday: $44 billion 2 year notes Wednesday: $42 billion 5 year notes Thursday: $32 billion 7 year notes Settlement is March 31 Because the majority of debt supply is concentrated in the front end of the yield curve, traders have been selling the curve---aka trading the "flattener". The yield curve can flatten one of two ways: Bear or Bull A bull flattener is when yields in the long end of the curve are falling faster than yields in the front end of the yield curve. For instance if 10yr TSY note yields are falling faster than 2yr TSY notes, then the spread between...(read more)

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Consumer Level Inflation Tame in February. Emergency Jobless Benefits Hit Record High

Adam Quinones — Thu, 18 Mar 2010 12:42:00 GMT

Good Morning. Inflation data has hit screens. The Consumer Price Index was UNCHANGED in February (+0.0018)...this is cooler than consensus forecasts which called for a 0.1% gain. The CORE CPI print, which strips out food and energy, rose 0.1% in February---on the screws. Year over year, the consumer price index is up 2.1%, slightly below economist expectations for a read of +2.3%. Ex-food and energy, consumer price levels were up 1.3% YoY. GASOLINE was a big contributor to weakness...don't expect that category to be so helpful next month---gas prices have been on the rise lately. Housing prices were all unchanged. Overall, another round of tame inflation data. Jobless Claims data was also released. New claims fell by 5,000 to 457,000 in the week ending March 13. This is slightly worse than...(read more)

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Looking At Longer Term Charts For Perspective

Matthew Graham — Wed, 17 Mar 2010 21:37:00 GMT

When faced with a lock float decision with decent arguments for either course of action, I like to look at longer term charts to get a sense of where I'm at vs. where I was or could be. Doing so at the current time leaves me with a pretty simple conclusion. Without trying to predict the future, we're obviously much higher in the 2010 range than we are low--pretty close to the highs in fact. It is frustrating, however, that a lot of the lower prices occurred in early January where we might have to doubt whether they were truly reflective of the range or were, in some way, remnants of year end distortion. Even so, the lows from late Feb make a similar case, but there too, we could impugn those on the grounds that they happened and were reversed abruptly. The bottom line I suppose, would...(read more)

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At The Highs Of The Day Heading Into Close

Matthew Graham — Wed, 17 Mar 2010 19:51:00 GMT

Today is much flatter compared to yesterday But 4.5's are still up 5 ticks and we're at highs again near end of day 10yr tsy lower by around 1 bp to 3.64 No data on Friday, but tons to consider tomorrow Waiting for reprices for the better, then consider locking First thing's first. It's another "up" day: Also, we've seen some correction to recent widening trends in MBS. Whether this should be reassuring or cause us to worry about spreads widening back out again is and will be uncertain, but at least we know it's uncertain. Here's what's going through my mind right now: 1. It's uncommon for rallies to string together more than a 4 or 5 day streak. Today marks the 4th day in a very stable and directional trend of improvement in MBS. Don't take...(read more)

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Current Coupon MBS Move Sideways at Resistance as Stocks Keep Rallying

Adam Quinones — Wed, 17 Mar 2010 16:48:00 GMT

The dollar is weaker, oil prices are higher, and stocks are rallying---STILL. The S&P is trading at a new "recovery rally" index high print. Rates traders are ignoring the stock lever---for now at least. Since the auction cycle ended last Thursday, the 10 yr note has staged quite the recovery rally of its own...yields have fallen 14 basis points from the 3.779% high all the way down to 3.634%...which happens to be a very technically relevant level: the 62% retracement of the Dec. 21 sell off. The 2s10s curve is also flatter....now resting at 274bps after peaking at 284bps last Wednesday. Again, this has occurred while stocks have rallied. Do you think the LOW VOLUME stock market is having much of an effect on the yield curve at the moment? I do not believe so...rates traders are...(read more)

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Producer Level Inflation Muted in Feb. Gasoline Index a Drag on Prices

Adam Quinones — Wed, 17 Mar 2010 13:02:00 GMT

Good Morning. Happy St. Patrick's Day. The BLS released the Producer Price Index at 830am. Producer prices fell 0.6% in February following a 1.4% rise in January. The core read, which strips out volatile food and energy costs, rose 0.1% following a 0.3% uptick in January. Both prints were below consensus estimates, in effect confirming the Fed's lack of concern about inflationary pressures. Intermediate goods did see a slight increase in price levels though, led by rising prices paid for manufacturing materials. At the earliest stages of production, prices plummetted. Across all stages of production, falling energy prices in February accounted for the majority of deflation with gasoline being the biggest drag. The Fed doesn't put much emphasis on commodity induced inflationary pressures...(read more)

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MBS And Treasuries Stay Strong Through Close

Matthew Graham — Tue, 16 Mar 2010 21:36:00 GMT

Bond Bulls In Control All Day Long Fannie 4.5's rise 7 ticks to 101-03 10yr note yield finally meets resistance at 3.65 Stocks end at best levels since Q308 Stocks face major test tomorrow to hold these levels In case you missed it, the news of the day was the FOMC statement. Just want us to pick out and discuss the juicy parts for you? Here: AQ RECAPS FOMC MINUTES Lock/Float already discussed in previous post here: MG DISCUSSES LOCK CONSIDERATIONS Other big news of the day here: Dodd's Releases Reform Package Need more discussion? Good Recap and More Lock/Float The MBS and Treasury bullet points at the top of the page can all be seen in today's chart. The "bulls in control" statement references that there was no major episode of losses (more evident in treasuries). AQ...(read more)

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Reprices for the Better Reported as MBS Hit Intraday Price Highs

Matthew Graham — Tue, 16 Mar 2010 19:57:00 GMT

4.5's up 8 ticks on the day to 101-04 10yr Tsy yield down just over 4bps to 3.65 S&P at 1159 (highest since sept. 2008, 9 pts higher than Friday) AQ brought you up to speed on FOMC statement, and the rest of the day has been pretty easy: just sit back and enjoy the healthy (but not insane) rally... Both MBS and Tsy's look to be honing in on their ranges established just after FOMC. A bit more volatility in MBS at the moment, but take some solace by the stronger and steadier showing from benchmark big brother: 10yr tsy. It's not like we're not expected to widen out from 10's, but when the benchmark is stable into a rally, it's one more variable we do not have to account for in identifying threats to pricing. Look for reprices for the better if you haven't seen...(read more)

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FOMC STATEMENT: Fed's MBS Purchase Program on Course to End as Planned, But....

Adam Quinones — Tue, 16 Mar 2010 18:15:00 GMT

The FOMC Statement has been released. First and foremost, there was no significant change in the verbiage regarding the end of the MBS Purchase Program. Here is how the statement reads: "To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month " The text that follows the above statement was slightly adjusted in a manner that leaves the door open for a program extension. "The Committee will continue to monitor the economic outlook and financial developments and will employ its...(read more)

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Addressing Analyst Concerns For "Material" MBS Corrections

Adam Quinones — Tue, 16 Mar 2010 15:16:00 GMT

I've gotten quite a few emails from panicked pipeline managers and loan writers regarding Meredith Whitney's bearish feelings on the Fed's exit from the MBS market and the general health of housing. If you missed it... THIS STORY is a decent recap of the CNBC interview. If you are asking, WHO IS MEREDITH WHITNEY?....she is an influential Wall Street banking analyst and independent investment researcher. She was notoriously bearish about the banking system before the worst days of the current financial crisis...and got a lot of attention because of it. Her guidance, outlook, and opinion have the ability to move markets.... This morning, Meredith correctly called attention to the fact that the macroeconomic recovery is largely dependent on the health of housing. Whitney is concerned...(read more)

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Housing Starts Fall 5.9 pct. Building Permits Decline 1.6 pct. Rates Reverse Course

Adam Quinones — Tue, 16 Mar 2010 12:48:00 GMT

Housing Starts and Building Permits fell in February. Housing Starts moved 5.9% lower to 575,000 annualized units, almost erasing the 6.6% gain seen in January. While this was a poor print for housing starts, the market was expecting worse...hence this is easier for traders to shrug off. Building Permits were 1.6% weaker in February at an annualized rate of 612,000. This follows a 4.7% decline in January but was essentially "on the screws" as forecasts called for an annualized pace of 610,000 permits. So again....crappy data, but not worse than anticipated. Looking a little deeper, most of the weakness in Housing Starts was a in mutli-family. SFRs barely budged while multi-unit fell from 109k units in Jan to 76k units in Feb. The same can be said about Building Permits...Single-family...(read more)

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