Two days in and the week continues to live up to its uninspiring expectations. Having made it to stronger recent levels yesterday, bond markets already showed signs of turning around before pushing to more aggressive levels. Today merely stood as a mild continuation of that reversal. Even though MBS prices were somewhat choppy at times, in the bigger picture, that choppiness was well contained within a narrow range. This leaves us in more neutral position heading into tomorrow's data-less day.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 4:06 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
MBS At Lows Again; Negative Reprice Risk Increasing
Fannie 3.5's just crossed the 103-10 pivot point for the first time today. An earlier bounce was easier to shrug off as a by-product of scheduled Fed Twist Buying, but things are a bit more serious this time.
10yr yields are close to their highs of the day but not yet breaking into new, weaker territory as MBS have. If 10's break higher (over the mid 2.01's), MBS will have a harder time bouncing back from this, but it's just a bit too soon to rule out a fairly big technical bounce back in a friendlier direction.
In the meantime, while bond markets try to figure out which way they're going, negative reprice risk is elevated. These aren't levels where we'd expect a majority of lenders to reprice, but some might. More serious reprice risk under 103-10 and falling. For now, we're basically testing 103-10 for support.
Post-Fed-Buying Volatility, MBS Briefly Hit Lows
We've seen the day's biggest jolt of volume and volatility at the 11am conclusion of the scheduled Fed Twist buying in the 2036-2041 maturities. While the total amount bought of $1.83 bln is slightly higher than the mid-point of the scheduled range (1.5-2.0 bln), it was weighted toward the shorter end of the maturity offerings.
It's not uncommon to see the most active volume and volatility of the day as bond markets briefly adjust prices/yields with the added clarity of knowing how the Fed conducted the day's scheduled buying. In today's case, yields are settling just barely under earlier morning highs around 2.01. Fannie 3.5 MBS briefly touched 103-10 and are back now to 103-13.
Although there's a slight bit of negative reprice risk suggested in the recent run down to 103-10, the most pronounced risk lies below that point. We'll assume the 11am drop to be Fed-related and ramp up our level of concern if prices head back to 103-10 or below. As always a few of the jumpier lenders might consider repricing for the worse on the way down to 103-10, but a majority of lenders aren't at risk of repricing unless we're moving lower from there.
Live Chat Featured Comments
Matthew Graham : "http://www.irs.gov/pub/irs-pdf/p936.pdf"
Scott Valins : "hey guys - I know we aren't accountants but does anyone know if someone who is not on loan or title makes mortgage payments, can they benefit from the interest deduction on tax returns?"
Jason Adams : "Am I the only one that hears "Fun Fact" and at no time in my life has it been followed by a fun fact. haha"
Matthew Graham : "MBS Technical Fun Fact: At no point this year has a break below 103-10 NOT resulted in further weakness of at least 6 more ticks. On overage, breaks below 103-10 result in a test of 103-00."
Matthew Graham : "particularly with "twist" buying vs QE, debt is debt. The Fed is selling their right to be paid short term, lower interest rates and buying an equal face value of longer term, higher interest rate debt--a restructuring of their balance sheet that favors long-term debt over short without "printing new money" as the angry press likes to say. The goal is to bring longer term rates down to stimulate economic activity."
Curt Sandfort : "I still have trouble with the whole "Feb buying Treasuries" thing....no matter how I try to work out the logic, it still just seems like check-kiting to me. MG, a link please? I know you have em."
Matthew Graham : "RTRS - FED BOUGHT $1.83 BILLION OF TREASURIES MATURING BETWEEN FEB 2036 AND AUG 2041 -NY FED "