Good Morning, Happy Dec.1....National "Grow a Beard" Month is now officially over.

Recap of Yesterday...

  • The Obama Administration put pressure on loan servicers. We are not so sure that's a great idea: READ WHY
  • TB&W fallout still reverberating through the mortgage supply chain. READ MORE
  • Internal warehouse lending via Community Banks...something you might be forced to learn more about in the future. READ MORE
  • FHA increases net worth requirements for FHA-approved lenders, strengthening lender approval criteria, and making lenders liable for the practices of their correspondent relationships. READ MORE
  • Fed shares more on reverse repos. This will be a key strategy in the Fed's exit from Quantitative Easing. READ MORE
  • Chicago PMI: 56.1 vs. 54.2 in Oct.  Beats expected 53.3...highest read since Sept 2008.  Employment up to 41.9...highest since Sep 2008, Prices Paid at 52.6, highest since November 2008.  Production index lower at 57.6 vs. 63.9 previous.
  • The 10yr TSY note traded  down to 3.19% and 2s touched 0.65%. The 2s/10s curve is having a hard time breaking 252bps resistance (CHART BELOW).

"Rate sheet influential" MBS coupon prices moved sideways for the majority of the session before hitting a new all time high when benchmark rates improved later in the day.  MG discusses HERE . In terms of relative value, MBS outperformed TSYs in the morning but were unable to keep up when TSYs touched 3.19% in the "after hours" session.

Trading flows were about average in the agency MBS sector yesterday. Minimal month end index extension related MBS buying was noted.  Originator supply  was in the neighborhood of $2billion. The Fed was seen buying 5.5s and 6.0s while servicers were selling and money managers and hedge funds took profits and moved back "up in coupon" into 5.5s. Again, a lack of supply and the "up in coupon" trade still dominate MBS trade flows.

The FN 4.0 ended the day at 100-14 yielding 3.965% and the FN 4.5 went out at 102-20 yielding 4.176%. The secondary market current coupon was 3.945%. The CC yield was +75bps/10yr TSY yield and +65bps/10yr swap rate.

So Far this Morning...

  • Stocks are higher around the world: SHANGHAI +1.25%, HANG SENG +1.34%, TOPIX +2.12%, NIKKEI +2.43%, CAC +1.86%, DAX +1.92%, FTSE +1.69%
  • The Reserve Bank of Australia raised their benchmark interest rate for the third month in a row. READ MORE

As the Dubai Debt story slowly moves out of the headlines (for now), the dollar is weaker, oil is more expensive, and domestic stocks are trading higher.This chart is fun...back and forth, baaack and forth.

Consequently, as we have been expecting, since stocks are stronger...rates profit taking and a general unwinding of the "flight to safety" trade has led benchmark TSY yields higher this morning. 2yr notes are unchanged while the long end of the curve gets wacked....the 10yr is almost 5bps higher at 3.238%. The 2s10s curve is STEEPER at 252bps.

Here is the 10yr so far this morning...

The FN 4.0 is -0-04  at 100-11 and the FN 4.5 is -0-04 at 102-17....