Posted: 5/9/2008 2:36:00 PM EST
We're down to 100-24 on the 5.5% which is the territory where lenders might consider repricing for the worse.
Posted: 5/9/2008 11:41:00 AM EST
We're now back on top of positive territory, but just slightly. There is a resistance level at 100-24 that was established this morning. So you're safe to float again...
Posted: 5/9/2008 10:45:00 AM EST
The trend suggests locking if you got rates more then 10 minutes ago.
Posted: 5/9/2008 9:44:00 AM EST
MBS prices are now in negative territory on the day, a huge swin from 10 minutes ago. If by some miracle you have rates already or have 24 hour lock ability. Lock 'em up. That's the safest play at least.
Posted: 5/9/2008 9:18:00 AM EST
That was both a salutation and descriptive phrase for the MBS market. Trading is pretty heavy at the moment and we're anywhere from 4-7/32nds improved over yesterday bringing the 5.5% coupon the big leagues at 101-00.
Just one economic release today, International Trade, showed a better than expected level of exports. This is not a major mover of the MBS market. The mover is fear. With AIG reporting a record writedown, and oil pushing ever higher into record territory, there are legitimate concerns about growth. So investors "play it safe" by buying bonds. Yet again, the 10 year treasury and the MBS are not tracking well. The fact that AIG's writedown has to do largely with mortgage-related debt could be a key factor here.
More detailed report to follow later this morning, but for now, float cautiously.
Posted: 5/8/2008 3:24:00 PM EST
the 5.5% coupon is at 100-29 currently, which means we will be seeing a handful of the most aggressive lenders offering 5.5% 30 year fixed conforming at PAR or better. Reprices for the better should be coming if we hold over 100-28 for 30 more minutes.
Posted: 5/8/2008 1:16:00 PM EST
Even though the 5.5% coupon made it all the way down to 100-22, we pulled a bit and have leveled off around 100-25, which probably will prevent any reprices that have not already hit. I think, based on the graph that the secondary market will be looking for a reasonable amount of time under the 100-23 level before repricing for the worse. We're safe, for now.
Posted: 5/8/2008 11:53:00 AM EST
the 5.5% had dropped from 100-29 down now to 100-24. This may prompt some lenders that priced aggressively or around the 11AM time frame to reprice for the worse very soon.
Posted: 5/8/2008 10:53:00 AM EST
MBS are doing great this morning, with the 5.5% now at 100-25! But there is a caveat.
The spreads between treasuries and MBS are starting to get a bit "gappy' with respect to recent weeks. With the dearth of Mortgage-related headline shockers, investors and traders have waded farther and farther into "the deep end" of risk aversion where the practically amphibious treasuries dwell. Granted this gap has been even tighter in the past before the world realized that there is an element of risk in ABS, but it has not been this tight since that excrement became fan-bound. In fact, some consider that it might be "pushing it" a bit when it comes to improvement in recent weeks relative to what it "deserves."
As operators in the mortgage industry, you know and I know that the increased rigor of underwriting guidelines will certainly have a drastically positive effect on defaults, but according to one of our friends who is one of the leading senior analysts for the MBS market (he wishes to remain anonymous due to his golf handicap), "MBS have tightened up a little too quick in recent weeks. We have some profit taking this morning as well as some retraction from run up to the tights."
What he means by "run up to the tights" is simply that MBS have tightened the gap to treasuries quickly. Profit taking, of course, indicates that investors holding MBS see attractive potential returns when prices reach these levels. Indeed, we've seen frequent technical resistance to the 101-00 ceiling area in the last few months.
As our analyst friend's call of the MBS market is usually better than his golf game, it's something to keep in mind. So, as I mentioned this morning that treasuries were not tracking well with MBS, this would be the reason. As you see treasuries improve substantially, don't count on a similarly substantial MBS improvement (even though they will USUALLY be moving in the same direction).
Keep in mind that this does not speak to the DIRECTION of MBS (for that we focus on macro-factors, technicals, reports, and headlines), but it does mean that the guy down the road shopping for a 10-20 I/O should be happy to get under 6% as it probably won't shed another .75% nearly as fast as it shed the last .75%. Diminishing returns, eh?
Posted: 5/8/2008 3:38:00 AM EST
It was a great day for MBS yesterday as a sell-off in stocks prompted bond buying. The 5.5% coupon finished the day at 100-23 which is almost enough profit margin to bring 5.5% at PAR within reach for many wholesalers (some of the more aggressively priced will be there), IF WE HOLD THE GAINS.
Yes, MBS is faring well despite good data, but the morning is young, and most of the data is against us.
1. Jobless Claims fell 18k to 365k, slightly better than the expected fall of 10k. In general, the weaker the labor market, the better MBS fare. On a deeper level of the data though, examining the trend in continuing claims points to the weekly claims reading remaining high, but still not as high as the 2001 recession. Remember that the Jobless claims number only refers to NEW claims. There is also a component of continuing claims that often goes unmentioned but is equally important. Here is what the jobless claims report has looked like for the past few months:
notice the rising continuing claims:
2. The central banks in Europe and England made no change to their benchmark lending rates. ECB president Trichet is more of an inflation hawk than our good 'ol boys at home, and prefers to combat inflation despite a weakening global economy. This has the potential to make European bond debt more attractive to investors compared to Us Treasuries. This isn't necessarily bad for MBS, but if investors are "enticed enough" to make their fixed income investments abroad, there will simply be less for them to invest in any other FI investments, including MBS, which will force mortgage rates higher.
3. Numerous retailers, including some of the whales like Wal-Mart and Costco are posting strong sales numbers. Though any sign of economic strength is something MBS would rather not see, the fact that these "value" chains are posting strength as opposed to Nordstrom is somewhat of a saving grace as we would expect them to do well in a weak economy where consumers pull back and look for bargains
Still to come is the wholesale trade and money supply reports, not normally major movers of MBS. As such, we can expect the stock market, yet again, to have a larger than normal impact on MBS today. Treasuries ARE NOTE tracking well with MBS this morning, so you will need to stay tuned to the blog for potential reprices.
We are just barely holding at positive on the day, which is very good considering yesterday's run-up. It's definitely a good morning to lock from a historical perspective. However, if the economic data is not enough to spark a stock advance, and moreover, if stocks decline for a second day, we could see another round of price improvements. As is the case any time MBS are both near the highs of their trading range and have recently risen appreciably, the absolute highest degree of caution must be exercised if you are not going to lock with the gains. This means eternal vigilance on your part. Lock requests should be on the fax machine, ready to go, online lock requests filled out, saved, and ready to submit. Stay glued to stocks and treasuries for signs of activity, and then check the blog to see if MBS are following suit.
So although we must watch for sharks, it's another day with the water wings on. I'll be out there myself, but don't expect me to hang around if the sharks start circling. If I see them coming, I'll yell as loud as I can!
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