Posted
Better than expected EHS data has pushed the S&P to new 2009 highs. Ugh....
Although
the bond market withstood negative fixed income fundamentals
yesterday...today's trading flows dont tell a similar story. Back to
"whats good for stocks is bad for bonds". When stocks skyrocketed, the
10 yr TSY yield rose 10bps from 3.44 to 3.54 and the SEPT 10 yr contract fell back towards all important 117-12 support (62 retrace and 200 hour MA).
Consequently the FN 4.5,
which had finally managed to break 100-10, felt the effects of rising
rates and negative convexity. Rate sheet influential prices plummeted
and the stellar gains we noticed from the lenders who published pricing
pre-10AM data....were gone. We hope we alerted you in time to cash in
on some aggressive pricing this morning...
Here is the damage...
The CHOPPY retracement back to PARNERTIA has been obvious all week....
Dont
lose perspective of rate sheet reality! We have been stuck in this
pricing range all summer...with 4.875 being FIRM resistance. At the
moment we are hovering near this pivot point and although we are anticipating some form of stock selloff confirmation in the near future...its too risky to bet the farm on.
Lets just assume that MBS keep rallying....we've been there already this summer. The FN 4.5 hit 100-30 in early July...yet primary/secondary spreads widened up. There is no guarantee that lenders eagerly pass along secondary market price appreciations. (Anyone monitor buy up/buydown schedule?). Hedging costs have been expensive this summer...rate sheets may not have much more room to rally.
So..we reluctantly remind that FLOATING REMAINS SUPER RISKY.
MBS, TSY, LIBOR QUOTES
Secondary Marketing Managers and Capital Markets Desks, if you are interested in subscribing to the same fixed income and mortgage market data we use:
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