Clearly, the whipsaw movements in MBS and Treasuries are readily apparent in the 2 day minute-to-minute charts that we watch on MBS Live. Additionally, volume spikes did indeed prove that today was the day markets were waiting for. But trading levels!!!!! Trading levels are going out the door basically unchanged from yesterday's!!! This is extremely disappointing for those of us hoping to see some directional guidance, and mildly heartening for those of us who just want things to stay where they are. Whatever the case, we'd count today as a net-positive for MBS despite the earlier weakness, if for no other reason, due to fact that a majority of recently achieved gains remain intact after the first big-ticket event in almost 3 weeks. On the other hand, it raises some concern as to how much emphasis has now been placed on impending economic events (GDP Friday and NFP next Friday) as well as unexpected Euro-headlines.
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 4:04 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
Bernanke Answers Big Questions, Bond Markets Calm Down
There's an incredibly promising pivot point in play for 10yr yields at the moment. As trading evolves around this pivot point, so too should the general positive/negative sentiment regarding MBS. The level in question is around 2.015 and can be seen as the upper teal line in the chart below.
So far, with a few scary breaks higher, this has been the key line of support today and also acted as notable support and resistance in the past. MBS seem billing to hold their ground as long as this support is being held in benchmarks.
Bottom line, so far so good and disaster seems averted for now, barring any surprising additional questions in the press conference. Most of the volume was seen in response to the release of the FOMC Member Forecasts, and now that Bernanke has said what he was generally expected to say regarding QE3 (i.e. still on the table), markets have what they need to hold their ground.
Reaction to Forecasts Continues Playing Out, MBS Bounce Back
- 3 prefer first hike in 2012, unchanged vs last time
- 3 prefer first hike in 2013, also unchanged
- 7 prefer first hike in 2014 vs 5 last time
- 2 prefer first hike in 2015, same as last time
- 0 prefer hike in 2016 vs 2 last time.
As you can see, a slightly more hawkish leaning but not in such a way that puts more emphasis on hiking before the current "late 2014" verbiage. This is "the doves becoming slightly less dovish," as opposed to "doves turning to hawks."
Bond markets are doing their best to shake off these adjustments and doing a fairly good job so far. It now looks like we'll make it to the Bernanke presser with MBS in strong enough territory to avoid major reprice risk (moderate reprice risk remains).
Fannie 3.5's made it down to 103-06 briefly and are back up to 103-11 at the moment. 10yr yields are up to 2.016.
Initial Reaction To Fed Forecasts=Negative. Negative Reprice Risk
First move has been to the downside. Biggest volume pop of the day, new lows for MBS, new highs for 10yr yields. Potential negative reprice risk, but still no runaway sell-off. More to follow...
Reuters "Instant Views" on FOMC Announcement:
Just a few highlights, more in the link below:
GENNADIY GOLDBERG, INTERST RATE STRATEGIST, 4CAST LTD, NEW YORK
"It looks like they left the second half of the statement fairly unchanged, the part dealing with the rates and Operation Twist etc. The market rallied into the statement. The statement should have read a little more hawkish, which is fairly consistent with the previous FOMC statement. The big focus is on the projections and Bernanke."
DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL, STAMFORD, CONNECTICUT
"There's not a lot of new information here. They certainly do acknowledge inflation has picked up but in same breath effectively say that 1) longer term expectations remain stable, and 2) that higher prices reflect crude and gasoline, and 3) that these will impact inflation 'only temporarily'. We see this as saying they are not worried, full stop, and are prepared to look past these pressures."
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK
"I would say it is probably a touch more dovish than the last statement. It does not seem to have much of a change from the last statement. Full focus is on the afternoon press conference and economic outlook."
Some Organic Indecision As Bond Markets Get Antsy
While the volatility has indeed died down, bond prices are generally looking like they're under pressure at the moment. If we were clever, we might concoct some play on words to refer to this as "pressure before the presser," ('presser' being market/news slang for 'press conference'). But the pressure is nominal for now.
Volume is surprisingly light, further adding to the sense that markets are waiting for the remaining FOMC events this afternoon. The press conference happens at 2:15pm and the member forecasts slightly earlier at 2:00pm.
Until then, you're sort of in a predicament if you haven't locked yet but are thinking about it. Reason being: there's still no high-volume, runaway sell-off. Last FOMC, that was an easy call to make given the clearcut differences in the statements and the clearcut trading direction afterwards.
This time around we're getting more of an equivocal, grindy, sideways-to-perhaps-slightly-weaker trading pattern that just reeks of fear and anticipation. Anticipation is obvious, and the fear is that Bernanke doesn't say enough to keep the embers burning for QE3 fires and the like.
Because of that, we're in a situation where risks of reprices for the worse are unfortunately present, though can definitely be reversed in short order. Rock and a hard place. Some lenders might reprice, but the story is far from over for the day.
Knee Jerks Slowing Down, Bond Markets See Sunlight
Volume and volatility are dying down somewhat now and bond markets live to fight another day (or another hour as the case may be, considering the upcoming Press conference and fed forecasts). Fannie 3.5's back to breakeven. Risks of negative reprices are greatly reduced.
Starting To Hold Ground Now.... Reprice Risk Present, but Easing
Quick bounce off the lows puts Fannie 3.5's trading around 103-13. Looking like a bounce off 103-10. (failed breakout test).
Selling Pressure Increases. Additional Reprice Risk
103-10 has been broken in Fannie 3.5 MBS, increasing reprice risk for the worse. Currently 103-08.
First Move Following FOMC is Weaker. Reprice Risk
The story is still unfolding... Yields spiked, MBS hit lows, Reprice risk is temporarily elevated, but we're not convinced of a major sell-off unless previous lows of the day (highs in terms of 10yr yields) break, and they haven't yet.
Treasuries, MBS In Stronger Territory Following 5yr Auction
Treasury yields are well off their highs of the day following a strong 5yr Treasury Note Auction at 11:30pm. In additional tradeflows and positioning are helpful at the moment as the European session closes and removes some "risk on" demand that had contributed to early weakness. With the European session and the 5yr Auction out of the way, we're simply seeing markets adjust to where they want to be ahead of the FOMC events coming up in about half an hour. Viewed in this light, it seems to make a lot of sense for 10yr yields to be smack dab in the center of the 1.90 to 2.07 range.
Fannie 3.5's are up a tick at 103-17 and 10yr yields are still almost a bp higher on the day at 1.982. First line of support for MBS going forward is 103-13, with major support level number one at 103-10. That's a great line in the sand for shifting lock sentiment if we find ourselves falling after FOMC. The next, and even more epic line in the sand is around 103-00, but historically, bounces have occurred within a few ticks of that price itself (say 102-30 to 103-02).
5yr Auction Preview
A few notes about the upcoming 5yr Note Auction:
- Note that the auction happens at 11:30am, an earlier time than normal due to the afternoon's FOMC events.
- It's fair to expect that the response will be subdued to some extent because of those looming FOMC events.
- The recent average bid-to-cover ratio is 2.94
- 5yr yields awarded at auction have tended to be slightly lower than the 1pm "when-issued" yield
- current 5yr when-issued yields have been between 0.897 and 0.899
Live Chat Featured Comments
Matthew Graham : "RTRS - BERNANKE - SIGNIFICANT PART OF DROP IN LABOR PARTICIPATION RATE IS CYCLICAL, SHOULD REVERSE AS ECONOMY IMPROVES "
MC : "REPRICE: 3:02 PM - Provident Funding Better"
Matthew Graham : "RTRS - BERNANKE - INTEREST ARE LOW BECAUSE OF MANY REASONS, INCLUDING SAFE HAVEN DEMAND, NOT JUST MONETARY POLICY "
Matthew Graham : "RTRS - BERNANKE - WHEN OPERATION TWIST PURCHASES COME TO END, SHOULD BE RELATIVELY MINIMAL EFFECT ON INTEREST RATES "
Matt Hodges : ""minimal response to fed ending purchases in June, if the Fed owns enough" really?"
Matt Hodges : "good question on twist right now"
Matthew Graham : "RTRS- BERNANKE - HAVE NOTICED LESS VOLATILITY IN INTEREST RATES AS A RESULT OF BETTER MARKET UNDERSTANDING OF WHAT FED IS GOING TO DO "
Matthew Graham : "RTRS- BERNANKE - VERY COMFORTABLE WITH CONSENSUS VIEW, REPRESENTS HIGHLY ACCOMMODATIVE STANCE OF POLICY, REMAIN ABLE AND WILLING TO TAKE FURTHER ACTION IF NECESSARY "
MortgageMan007 : "is it my computer speakers or does his voice sound shaky and not as confident?"
Matthew Graham : "RTRS- BERNANKE - SHOULD OUTLOOK STRENGTHEN NOTABLY, FED WOULD HAVE TO RESPOND TO THAT "
Matthew Graham : ""those tools remain very much on the table. We will not hesitate to use them.""
Matthew Graham : "Then maybe someone had the bright idea: "hey... if it's a few months later, and the economy is supposed to be improving... and the average FOMC member isn't more optimistic about rate hikes, maybe this isn't so negative for bonds after all... Let's see what Ben has to say." and here we are."
Matthew Graham : "initial read: fed more hawkish. deeper read: uber-doves slightly less dovish, moderates unchanged, hawks unchanged."
Matthew Graham : "This is turning out to be "the biggie" in terms of volume AP. The shift in spectrum spooked bond markets, but then the "yeah buts" helped things bounce back. Classic case of "initial read vs deeper read""
Ira Selwin : "REPRICE: 2:11 PM - Franklin American Worse"
Andy Pada : "MG, what is going on here? why the bronco?"
Matthew Graham : "RTRS- FED SAYS 3 OFFICIALS WOULD PREFER FIRST RATE HIKE IN 2012 (PREVIOUS 3); 3 IN 2013 (PVS 3); 7 IN 2014 (PVS 5); 4 IN 2015 (PVS 4); 0 IN 2016 (PVS 2) "
Curt Sandfort : "re: BOFA, that's what I told the realtor, but apparently the asset manager rejected the offer and verbally told them to go get their loan with BOFA, could be misunderstanding that they want to be preapproved."
Erik Forgue : "Sounds liek the BOA LO id stretching the truth "
Erik Forgue : "BOA only requires the approval from BOA, you can use any lender. "
john murphy : "curt tell them you're going to check with HUD's RESPA compliace division just to be sure...watch how fast they bail"
Adam Shelton : "You will have to fight over it and threaten them before they will back down in my experience. "
Adam Shelton : "Curt..no, IMO, that's a clear violation of RESPA"
MMNJ : "i do not think so Curt"
Paul Carlin : "severance is not a good way to judge the persons future ability to make a payment. "
Curt Sandfort : "not just get preapproved, but actually get the loan"
Curt Sandfort : "can BOFA require my buyer to get their loan from BOFA if it is REO?"
john murphy : "chip: no way you can doc continuance, deal will implode"
Chip Harris : "Have a neighbor that was lid off and said that she has been told since she in on severence for 6 months (maybe 12?) that she can qualify using her income. I told her I didnn't think so. Anyone think any differently? If not, I will tell her to use that lender. "
Aaron Buyside Meyer : "MG that is great"
Curt Sandfort : "that is good stuff MG"
Matthew Graham : "put a little something together for ya with Glenn's help: http://www.mortgagenewsdaily.com/mortgage_rates/blog/256394.aspx"
Andy Pada : "so we pretty much got status quo, is there still a sell off concern?"
Raul Lopez : "I think DOW will drop to just in the green by market close."
Bill Barham : "Agree"
Jeff Anderson : "I'm with you , VB. Stocks will close just in the green."
Raul Lopez : "I think so too Vic"
Victor Burek : "i still think we end in the green"
Victor Burek : "got mouse on lock button..but holding"
Victor Burek : "holding"
Dirk Postupack : "between 9 am and 9:30 am we were at 103-11......now 103-08....down 3 from pricing hours....."
Chris Kopec : "That's what I was thinking too, Brent."
Brent Borcherding : "knee jerk"
rford : "the inflation comment doesnt sond good"
Matthew Graham : "RTRS - FED VOTE IN FAVOR OF POLICY WAS 9-1; LACKER DISSENTED, DOESN'T ANTICIPATE THAT ECONOMIC CONDITIONS LIKELY TO WARRANT VERY LOW FED FUNDS RATE THROUGH LATE 2014 "
Matthew Graham : "RTRS - FED SAYS DESPITE SIGNS OF IMPROVEMENT, HOUSING SECTOR REMAINS DEPRESSED "
Matthew Graham : "RTRS - FED SAYS STRAINS IN GLOBAL FINANCIAL MARKETS STILL POSE SIGNIFICANT DOWNSIDE RISKS TO ECONOMIC OUTLOOK "
Matthew Graham : "RTRS - FED SAYS TO CONTINUE PROGRAM TO EXTEND MATURITY OF HOLDINGS AS ANNOUNCED, MAKES NO FURTHER COMMENT ON END OF PROGRAM "
Matthew Graham : "RTRS - FED SAYS EXPECTS GROWTH TO REMAIN MODERATE OVER COMING QUARTERS, AND THEN TO PICK UP GRADUALLY "
Matthew Graham : "RTRS - FED AGAIN SAYS TO KEEP RATES EXCEPTIONALLY LOW AT LEAST THROUGH LATE 2014 "