Morning Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard
Loan Pricing Worse as MBS Give Back Gains.
This is a directional alert. Loan pricing will be worse today after bonds reacted negatively to a much better than expected ADP Employment Report at 8:15AM. The Fannie Mae 4.0 MBS coupon is currently -9/32 at 99-27 and the Ginnie Mae 4.0 MBS coupon is -8/32 at 101-20. When taking into consideration after-hours MBS weakness yesterday, rate sheets should shed 15-30bps this morning.
BoA Loses Bid to End HAMP Lawsuit
(Reuters) - Bank of America Corp lost its bid to dismiss a lawsuit accusing it of reneging on promises to help borrowers modify their mortgage loans under a much-criticized federal program. The bank, however, claimed a partial victory, citing District Judge Rya Zobel's decision to dismiss claims by borrowers who sought to participate in the two-year-old Home Affordable Modification Program, or HAMP. Zobel nonetheless ruled that homeowners who contend they did not get modifications for which they qualified under HAMP, to avoid foreclosures, could pursue claims against Bank of America. The complaint "meticulously" detailed each of these plaintiffs' compliance with loan modification conditions, but said the bank "willfully failed" to modify the loans, either in bad faith or for its own economic benefit, Zobel wrote. Such allegations are "sufficient" to let the lawsuit go forward, she added. Zobel rejected claims by borrowers who claimed they were "intended beneficiaries" of HAMP but never entered the program, saying they had no contractual right to relief. She also rejected a request to block Bank of America while the lawsuit is pending from foreclosing on 37 borrowers said to be in "imminent danger" of losing their homes. Last week, Bank of America said it would take $20 billion of charges for various mortgage matters, including over its 2008 purchase of Countrywide Financial Corp. Like several rivals, the Charlotte, North Carolina-based bank has also been in talks with state and federal regulators to resolve claims over alleged foreclosure abuses. HAMP was created in 2009 as a centerpiece of efforts by the Obama administration to boost the nation's housing sector. While it provides incentives to loan servicers to encourage modifications, HAMP has been widely derided as ineffective.
Treasury Secretly Weighs Options to Avert Default
(Reuters) - A small team of Treasury officials is discussing options to stave off default if Congress fails to raise the country's borrowing limit by an August 2 deadline, sources familiar with the matter said on Wednesday. Senior officials, including Treasury Secretary Timothy Geithner, have repeatedly said there are no contingency plans if lawmakers do not give the U.S. government the authority to borrow more money. But behind the scenes, top Treasury officials have been exploring ways to prevent a financial meltdown that would be triggered if the government were unable to pay its bills on time, sources told Reuters. Treasury has studied the following issues: - Whether the administration can delay payments to try to manage cash flows after August 2. - If the U.S. Constitution allows President Barack Obama to ignore Congress and the government to continue to issue debt.
- Whether a 1985 finding by a government watchdog gives the government legal authority to prioritize payments. The contingency discussions, which have remained a closely guarded secret throughout weeks of negotiations with Congress over the debt ceiling, are being led by Mary Miller, Assistant Secretary for Financial Markets, who is effectively custodian of the country's public debt. Miller's team has debated whether Obama could ignore Congress and order continued borrowing -- by relying on the 14th Amendment of the U.S. Constitution -- if it fails to raise the borrowing cap. The fourth section of the 14th Amendment states the United States' public debt "shall not be questioned." Some argue the clause means the government cannot renege on its debts. Obama dismissed talk of invoking the amendment on Wednesday. "I don't think we should even get to the constitutional issue," he said. "Congress has a responsibility to make sure we pay our bills. We've always paid them in the past."
Bond Market Rocked by ADP Report. Deja Vu?
Fannie Mae 4.0 MBS are down 8 ticks this morning to 99-28 after a stronger-than-expected ADP private payrolls report. 10yr notes have bounced a few times just under 3.17, about 4.5 bps higher than their pre-data yields. Well, we've been here before... Granted, the last time it happened, ADP was released on its normal Wednesday, but the vitals are the same: ADP reports much better than expected, bonds sell off due to the implication on the upcoming Friday NFP, and finally NFP reports close to the original consensus or even weaker. But just because we can observe clear underlying trading motivations this morning, don't take that to mean that we'd shrug them off or that they don't matter. Bottom line is that market have to take a big outlying ADP print seriously on the chance that it's an accurate predictor, and believe it or not, it is surprisingly accurate leading indicator of NFP in a few ways (not always to month-to-month "headline" numbers though...).
ECON: Jobless Claims Fall Slightly, Remain Near Forecast
Weekly Jobless Claims fell to 418k from an upwardly revised 432k last week. Economists polled by Reuters expected 420k. The 4 week moving average (which many market participants prefer in order to smooth out some of the week-to-week variability of the report) fell to 424.75k from 427.75k. Continued Claims fell slightly 3.681 mln from 3.724 miln last week.
ECON: Private Payrolls Beat Estimates, Bigtime
Employment in the U.S. private business sector rose 157,000 from May to June on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. This is well above the Reuters consensus estimate for an increase of 68,000 private payroll jobs and a considerable improvement from the May report (+36,000 jobs). Employment in the service-providing sector rose by 130,000 in June, nearly three times faster than in May, marking 18 consecutive months of employment gains. Employment in the goods-producing sector rose 27,000 in June, more than reversing the decline of 10,000 in May. Manufacturing employment rose 24,000 in June, which has seen growth in seven of the past eight months. These figures are above the consensus forecast for today’s report and for Friday’s jobs number from the BLS. Payroll employment growth at this pace usually implies a steady unemployment rate, perhaps even a modest decline. June’s figures suggest that the economic recovery, which slipped in the spring, might have found new traction in early summer. Employment among large businesses, defined as those with 500 or more workers, increased by 10,000, while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 59,000. Employment for small businesses, defined as those with fewer than 50 workers, rose 88,000 in June. Employment in the construction industry dropped 4,000 in June, but has been essentially flat since last December. The total decrease in construction employment since its peak in January 2007 is 2,124,000. Employment in the financial services sector decreased 3,000 in June, bringing the total employment decrease for that same period to 686,000.
New MBS Commentary Post
Featured Market Discussion
Adam Quinones : "if I see a case build in the opposite direction id change my view. the EU crisis is far from over as well but we have our own debt issues to deal with right now."
Brett Boyke : "3.40 is anticipating strong growth territory, don't see it holding"
Adam Quinones : "im paying close attention to June data and anecdotal evidence Brent."
Brent Borcherding : "Just for the sake of fun convo, at that point would you change your views for lower yields ahead this summer? Seems like a move like that would take several months to come back from, no?"
Adam Quinones : "CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate has risen to 4.625%, but fewer lenders are readily quoting. More lenders are offering 4.75% instead (extra margin in rate sheets). On FHA/VA 30 year fixed "Best Execution" is still 4.375% but just barely, 4.50% is more willingly quoted. 15 year fixed conventional loans are best priced at 3.875%. Five year ARMs are still best priced at 3.25% but the ARM market is more stratified and there is more variation in what "
Dean Gorenflo : "4.75 here"
Brent Borcherding : "Is 4.625 still best ex, now? I'm not seeing it on my sheets."
Andrew Horowitz : "then the question is does 3.40 hold or does the snowball just run right htrough it"
Adam Quinones : "3.31 would draw out duration shedding. It is a snowballing level. "
Andrew Horowitz : "3.31 and then 3.40 if you remember 3.31 was not a very strong number either direction"
Adam Quinones : "loss of C30 BestEx at 4.625 for sure Brent."
Brett Boyke : "my email convo earlier with my buddy from Cantor - BB "What’s your read on NFP tomorrow?" his response- "75k to 150k ,rate unchanged. Adp was slightly stronger today but the correlation is questionable. obama needs a surprise to the upside so the conspiracy theorists are thinking better numbers.""
Brent Borcherding : "So let's say NFP beats the expectations tomorro and we break above 3.2...next stop 3.31?"
Adam Quinones : "my main concern: From the week ahead: Economists have already cut forecasts considerably for 2011, but did they over-do the downgrades? Leaving too much room for upside surprises. This is a concern of ours. We still think the economic recovery is lacking core ingredients like wage-growth, consistent payroll expansion over 200,000 jobs a month, and a bottom in housing, but the market is used to that by now. That's where trading technicals come into play.... "
Andrew Horowitz : "my concern about the NFP number has been the low bar they have set "
Adam Quinones : "that's how id manage my book at least."
Adam Quinones : "I just dont see much motivation to push 10s past 3.07 right now. "
Adam Quinones : "Of course if the number disappoints or simply fails to impress...those shorts will need to be covered."
Adam Quinones : "direction of the KNEE JERK reaction following NFP."
Adam Quinones : "fast$ setting up speculative shorts is a directional indication though. "
Adam Quinones : "sentiment is very "wait and see""
Adam Quinones : "just not right now...not ahead of the NFP number."
Adam Quinones : "eh. Real$ has also showed a strong willingness to buy at cheaper prices over the past week "
Jeff Anderson : "Not good."
Adam Quinones : "fast$ is setting up short positions, real$ has just stopped bargain buying"
Adam Quinones : ""the path of least resistance is UP for interest rates""
Jeff Anderson : "So that's not good for us, right? Bond guys are always the smartest guys in the romm."
Adam Quinones : "bond mkt seems to be setting up short positions Jeff."
Jeff Anderson : "So nothing to really right home about, but the bulls will grab any improvement as a sign that last month was a temporary slowdown. Does it feel to anyone else that overall things are really improving?"
Jeff Anderson : "At 13 weeks in a row of initial claims over 400k can there be a significant improvement over last month? I'm saying 120k and maybe a tick lower on the household."
Brent Borcherding : "Stock Lever is not our friend right now."
Jeff Anderson : "Morning Team. So what are the whisper numbers out there for tomorrow? Changed since the ADP came out?"
Adam Quinones : "From the week ahead: Economists have already cut forecasts considerably for 2011, but did they over-do the downgrades? Leaving too much room for upside surprises. This is a concern of ours. We still think the economic recovery is lacking core ingredients like wage-growth, consist payroll expansion over 200,00 jobs a month, and a bottom in housing, but the market is used to that by now. That's where trading technicals come into play...."
Matthew Graham : "RTRS- US INSURED UNEMPLOYMENT RATE FELL TO 2.9 PCT JUNE 25 WEEK FROM 3.0 PCT PRIOR WEEK (PREV 2.9 PCT) "
Matthew Graham : "RTRS- US CONTINUED CLAIMS FELL TO 3.681 MLN (CON. 3.700 MLN) JUNE 25 WEEK FROM 3.724 MLN PRIOR WEEK (PREV 3.702 MLN) "
Matthew Graham : "RTRS- US JOBLESS CLAIMS 4-WK AVG FELL TO 424,750 JULY 2 WEEK FROM 427,750 PRIOR WEEK (PREVIOUS 426,750) "
Matthew Graham : "RTRS - US JOBLESS CLAIMS FELL TO 418,000 JULY 2 WEEK (CONSENSUS 420,000) FROM 432,000 PRIOR WEEK (PREVIOUS 428,000) "
Adam Quinones : "S&P futures from +5.00 to +10.25 at 1346"
Adam Quinones : "RTRS - ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 157,000 PRIVATE SECTOR JOBS IN JUNE "
Adam Quinones : "RTRS - REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR JUNE WAS FOR INCREASE OF 68,000 JOBS"