Posted
As market participants begin to head towards to the exits, "rate sheet influential" MBS coupons are trading towards the bottom of the range we've been discussing. You can see a narrowing of the range in the chart below...you can also see prices lose momentum over the past few sessions. This is a function of accounts selling into strength as no profit is left on the table heading into NFP at 830am tomorrow morning. Positions "all square" before the big event.
The FN 4.5 is -0-08 at 100-03 yielding 4.499%.
This just hit my email:
The Federal Deposit Insurance Corporation (FDIC), in coordination with the other member agencies of the Federal Financial Institutions Examination Council (FFIEC), released an advisory today reminding institutions of supervisory expectations for sound practices to manage interest rate risk (IRR). This advisory, adopted by each of the financial regulators, reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the IRR exposures of depository institutions. It also clarifies elements of existing guidance and describes some IRR management techniques used by effective risk managers.
The financial regulators recognize that some IRR is inherent in the business of banking. At the same time, institutions are expected to have sound risk-management practices to measure, monitor, and control IRR exposures. The financial regulators expect each depository institution to manage its IRR exposures using processes and systems commensurate with its complexity, business model, risk profile, and scope of operations.
The financial regulators remind depository institutions that an effective IRR management system does not involve only the identification and measurement of IRR, but also addresses appropriate actions to control this risk. If an institution determines that its core earnings and capital are insufficient to support its level of IRR, it should take steps to mitigate its exposure, increase its capital, or both.
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I dont know about you but my first reaction to this was: WHY NOW? WHY SEND THIS OUT THE NIGHT BEFORE NFP? ARE YOU TRYING TO TELL ME SOMETHING FDIC???? Should I be worried about a headline event causing a mass exit of the overcrowded Fed Funds/2 yr TSY note carry trade????
The bond market had a brief reaction which quickly corrected...so its being overlooked, I just found the timing to be somewhat alarming. I feel like an IRR reminder is redundant to a bank CFO, they know this stuff, why remind them right before NFP?
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