Today was the day we'd reserved for paying attention to domestic economic data in lieu of all the Euro-drama of late. Most any market participant would have told you last night that a weak NFP today would result in lower rates, but reaction outdid many expectations. We don't see this so much as a factor of today's NFP numbers being such a profoundly negative implication on economic fundamentals as much as we just think it means that QE3 or "something like that" is much more likely. We also think that's what markets think too, and it would stand to reason, then, that MBS performed much better today vs recent Euro-driven flights-to-safety considering the source of today's rally is also a sort of hint that uncle Ben might send MBS a graduation check. Greek elections June 17th and FOMC Announcement June 20th to keep things subdued until then... What could be better for rate sheets!? The dark cloud on the horizon is the rumor of a concerted central bank 'emergency operation' over the weekend. We might see a short-lived bounce back in the other direction on Monday if that's the case, but the key events later in the month mentioned above should serve to keep ranges much more narrow than they otherwise would be after huge bull-runs to record levels.
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 4:07 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
Beware The Pipeline Control Negative Reprices!
Some lenders are more prone to this than others, but anyone runs the risk of getting "too busy" with respect to capacity on a day like today, and thus runs the risk of repricing for the worse despite improving MBS in order to curb demands on that already-stretched capacity. The only two ways you can try to see something like this coming are:
- past precedent of reprices into rallying MBS Markets, and
- any other reason to believe that a particular lender's operations are stretched thin beyond the scope of just one regional branch.
We've seen one so far from a "big 5" bank. No way to know if others will follow, but it's a possibility, and one that we can't forecast with price movements.
MBS Inching Into New Highs As Bond Markets Settle In Stronger Territory
All things considered, there really hasn't been too much of a knee jerk reaction to this morning's jobs data. 10yr yields shot predictably lower and after bouncing back from their initial lows, never went any higher than pre-NFP yields, bouncing lower just under 1.51 around 9:35am. Things have been narrowing and consolidating ever since, and that's something that MBS can appreciate. Fannie 3.0's just edged to their highest levels of the day at 103-03 (a price that a mere month ago, wouldn't have been too bad for a Fannie 3.5!). As for 3.5's themselves, they just notched above their earlier high at 105-11. 10yr yields are at 1.4687 and stocks have been drifting back toward their morning lows.
The biggest story of the morning apart from NFP, is one that hasn't gotten much attention, but has caused BY FAR the biggest swing vs y'day's trading range. Shortly after NFP, rumors started circulating about a concerted central bank intervention over the weekend, involving at least the ECB if not others. Relative to yesterday's range, the Euro skyrocketed from multi-year lows this morning to almost a cent-and-a-half higher from 8:49am to 9:35am. That's a gigantic move. Note the time of the bounce as well... Same time that Treasuries hit their highs....
Conclusion: we would have seen less indecision, and possibly even lower Treasury yields this morning had it not been for the intervention rumors. Expect further big moves ahead if the ECB comes out with any clarification for or against such an operation. For now though, markets have moved to discount it to a much greater extent than they had originally (discounting possible intervention, resulting in yields, Euros, stocks, falling back near previous levels, with all of the above being good for MBS, though a BREAK lower isn't great for MBS as it creates even more unwanted volatility).
Live Chat Featured Comments
Michael Tadros : "REPRICE: 1:58 PM - Provident Funding Better"
Tom Schwab : "I expect that going into a weekend around 1pm PST not 10:30am PST."
Matt Hodges : "frankly, i wouldn't be surprised to see more of that this afternoon"
Tom Schwab : "Chase repriced for the worse? Whiskey Tango Foxtrot?"
Matt Hodges : "has to be"
Matthew Graham : "speaking of pipeline control...?"
Tom Schwab : "REPRICE: 1:53 PM - Chase Worse"
Matthew Graham : "here's the Investopedia explanation on ALCO's (Thanks Mike): Investopedia explains 'Asset-Liability Committee - ALCO'
For example, the ALCO will have responsibility for setting limits on the arbitrage of borrowing in the short-term markets, while lending long-term instruments. Among the factors considered are liquidity risk, interest rate risk, operational risk and external events that may affect the bank's forecast and strategic balance-sheet allocations.
Read more: http://www.investopedia.co"
Michael Francis : "ARM's are a pain for that reason, especially the hybrid ARM's (5/1, 7/1, etc.) I will dig up some info on them if I can find it and share with anyone who wants to read it."
Matthew Graham : "sounds like me running a mile "
Thomas Nelson : "It can still be done.....just not comfortably"
Matthew Graham : "no argument. Do you have other options?"
Thomas Nelson : "To raise the rate .375% overnight is tough on our end....regardless"
Michael Francis : "Not an MBS considerations at all"
Michael Francis : "ALCO - Asset Liability Committee - they typically set ARM pricing...."
Matthew Graham : "Seriously TN? Arm pricing is a cruel mistress, largely dependent on short term cash-flow considerations. When certain needs are met, and the intermediate term outlook for fixed vs. floating rates changes abruptly, ARM pricing can move rapidly in the opposite direction from fixed. I haven't looked at the breakdown of ARM pricing between lenders yet today, but I can tell you that there's SIGNIFICANTLY more variation between lenders. It's not tied to MBS and while the adjustments may be based o"
Joseph Watts : "Ha. Love the site."
Matthew Graham : "way to go MBS Live... +1 gold star"
Matthew Graham : "you gotta love a community where someone asks a question about a particular lender's pricing changes and a VP of sales from that company itself replies in real-time moments later with the answer. "
Joseph Watts : "It is called locking over 700 loans yesterday."
Bromi Krock : "pipeline control"
Thomas Nelson : "Here is a dandy for you all...........Amerisave was at 102.349 on a 5yr ARM yesterday at 2.625%..........TODAY they are at 102.064 at 2.875%. How can this be?"
Victor Burek : "yes"
Curt Sandfort : "does a Streamline FHA start the 5 years over for MI?"
Christopher Stevens : "to be quite honest these levels are scary! A reversal could be fast ugly"
Victor Burek : "we will no doubt see some kind of pull back in the near future..but the best rates are still ahead of us"
Christopher Stevens : "a trend channel from feb 2011 to now shows 106 might be in the cards"
Victor Burek : "i think we are right were we are supposed to be...europe isnt solved and gonna get much worse"
Victor Burek : "the correct was swift and severe..rates should have never risen earlier this year"
Ira Selwin : "hope in one hand...you know the rest"
Adam Quinones : "close your eyes and hope for the best?"
john murphy : "correction will be swift and severe I feel. we are not in a fact-based environment. almost irrational. how can you possibly hedge in this environment?"
john murphy : "looking at the 3.5; anyone else afraid of heights?"