After days and days watching MBS get ground into the ceiling at all-time highs despite falling Treasury yields, MBS finally had their chance to hold their ground for a minor correction higher in benchmark yields. When the dust settled, they had done just that! Treasuries were weaker overnight and into the NY open as European markets pulled back from the brink of further flights-to-safety after German Bunds bounced precisely on yesterday's low yields. Treasuries didn't follow Bunds much for that dip overnight as there was a 30yr Auction Concession to be done! Passing over the morning data without much notice, bond markets kept leaking higher in yield into the auction.
But the latter turned out to be relatively tremendous vs historical results, bringing longer-dated Treasuries back in line with their opening levels (say 1.88's in 10yr yields). MBS were choppy within a narrow range, not too flustered by any of the overnight or morning weakness in Treasuries. Late day illiquidity is upon us now as May coupons have little reason to trade ahead of tonight's roll to June. Most of the trading activity has been in the upper stack anyway, leaving the Fannie 3.5's and 3.0's more susceptible to whims of the few. We wouldn't read much at all into price action in Fannie 3.5's this afternoon and doubt any lenders will either. If you do see a negative reprice it won't be due to the movements of MBS Prices.
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 4:05 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
30yr Auction Bucks Historical Trend. Great Demand, Lower Yield...
Today's 30yr bond auction stopped through at a lower-than-expected yield for the first time since 2007 and garnered a high 2.73 bid-to-cover ratio vs recent averages for 30yr refundings of 2.32. Dealers weren't forced to buy nearly as much as they usually do, thanks in large part to a big uptick in Indirect Bidder participation ('Indies' or "IB's" are generally considered a proxy for foreign demand).
This is a fantastic result for the long bond and bond markets have seen their highest dose of volume on the day because of it. The caveat is that there had been a decent concession heading into today's auction both from the overnight bond market weakness and another last minute dose from noon - 1pm. Case in point, 10yr yields have simply returned to this morning's lower yields but haven't stampeded through them toward yesterday's low 1.8's, not yet anyway. The major accomplishment here would be getting back under 1.88. Until then, this great auction is simply producing good (but not "great") results. Still... Good is good!
30yr Auction Preview: Refundings Are Tough...
We took a few extra moments yesterday to distinguish between "Refundings" (new batches) and "Reopenings" (additional opportunities to buy those batches) when it comes to Treasury Auctions. With that in mind, 30yr Bond Refundings don't do very well historically. The stopping yield has been higher than-expected since before the mortgage melt-down for each and every 30yr refunding. Additionally the bid-to-cover runs at around 2.32% since the August 2011 FOMC Announcement vs around 2.82% for re-openings.
The bottom line here is that low bid-to-cover and higher stopping yield than the 1pm "when-issued" (can be thought of as the expectation for where the auctions high yield will stop) are the norm for 30yr Refundings. On a final note, and because its importance seems a bit overdone in the media, we wouldn't read too much into a low "indirect bidder" %. Dealers tend to do the heavy lifting at 30yr refundings taking about 5% more than the average reopening, while Indirects tend to take about 5% less.
Live Chat Featured Comments
Matt Hodges : "Josh: you probably should check out ML 12-4 for the MIP factors"
Michael Gannon : "90 and above is 60bps"
Michael Gannon : "78-90 is 35bps"
Michael Gannon : "under 78ltv zero"
Josh Stika : "what is the fha mi rate on a 15 year?"
Adam Quinones : "banks matching longer liabilities."
Matthew Graham : "10's sorta "meh..." y'day in favor of 30's today"
Matthew Graham : "Duration shift."
Matthew Graham : "AQ nailed it"
Andrew Horowitz : "speaks volumes about the true mentality of the bond markets"
Adam Quinones : "get that duration!"
Andrew Horowitz : "that is a great auction"
Matthew Graham : "A+ for 30yr refundings"
Matthew Graham : "solid A"
Matthew Graham : "RTRS - US TREASURY - PRIMARY DEALERS TAKE $8.12 BLN OF 30-YEAR BONDS SALE, INDIRECT $5.39 BLN "
Matthew Graham : "RTRS - U.S. 30-year bond BID-TO-COVER RATIO 2.73, NON-COMP BIDS $19.54 MLN "
Matthew Graham : "RTRS- U.S. SELLS $16 BLN 30-YEAR BONDS AT HIGH YIELD 3.090 PCT, AWARDS 63.81 PCT OF BIDS AT HIGH "
Matthew Graham : "wow, a stop through"
Matthew Graham : "3.115 = 1pm WI"
Sam : "here we go!"
Bryce Schetselaar : "I'll try it and let you know...You guys are right, it seems like most stuff is what it is now days. "
Chris Kopec : "Agree with MH.....the deal fits in the box, or it doens't. The days of trying to make things work have been stamped out thanks to regulations."
Matt Hodges : "run it at 44.99 and see if it works - no sense in ruffling feathers if you can't do it"
Justin Bayle : "He probably prefers not to keep paying a higher rate too. Decisions decisions"
Matt Hodges : "you have indicated that you prefer to decline him...."
Bryce Schetselaar : "he has indicated that he prefers not to..."
Matt Hodges : "can he bring the cash to pay down the loan amount?"
Bryce Schetselaar : "yeah, we are at HVE. 740 fico. Reserves in retirement accounts over $50k"
Matt Hodges : "that'd be a good place to start"
Andy Pada : "get it below 45 dti"
Matt Hodges : "reserves? are you at HVE?"
Bryce Schetselaar : "I have a FHLMC open access investment property at 104% LTV, 45.5% dti that keeps giving me a caution. any ideas?"
Matthew Graham : "took a sec to upload and mark up, but on the topic of home prices vs rates: http://www.mortgagenewsdaily.com/cfs-file.ashx/__key/CommunityServer.Components.UserFiles/00.00.00.21.04/51012-EHSvMBA.gif"
Matthew Graham : "even if you want to leave it as broad as "in the frame of the last 6 years, prices tend to vary directly with rates""
Adam Quinones : "increase in home prices would imply demand from home buyers. In current credit environment, a boost in demand implies an improvement in borrower credit profiles or some increase in money creation by banks (maybe inverted yield curv)"
Andy Pada : "Given recent past lessons, is it necessarly true that an increase in housing values will result in an increase in interest rates?"
Matthew Graham : "exactly"
Adam Quinones : "can you imagine how much servicing values would improve if home prices rallied 2-3% ? "
Matthew Graham : "Donovan may not be Demarco, but he's certainly speaking to him here."
Matthew Graham : ""Most importantly, he said, there is enormous up-side potential. "If we can just move house prices a few percentage points through this broad-based refinancing, the benefits to the taxpayers through improvements in the performance of Fannie Mae and Freddie Mac, FHA, and the broader lift that the economy would have are all potentially enormous.""
Matthew Graham : "interesting to see an overt goal of refinance efforts being aimed at raising home prices, and the way he says it makes it seem like it's more about Fannie/Freddie stability than about raising home prices to benefit the economy. Of course all are interconnected ultimately, but just an interesting choice of words here:"
Adam Quinones : "just saying..."
Matthew Graham : "much to my dismay"
Adam Quinones : "Shawn Donovan isnt Ed Demarco"
Matthew Graham : "several interesting tidbits (and it's also part 2 of the write up on the Senate hearing from Tuesday that some of you asked for more details on)."
Matthew Graham : "you guys see this in the news ticker? http://www.mortgagenewsdaily.com/05092012_refinancing_shawn_donovan.asp "