Risk markets loved the news of the weekend Spanish bailout in the first few, low volume hours of the Asian session, but opening levels proved to be the limit, especially when Europe got in the door. 10yr yields that had been as high as 1.726 quickly fell back to last week's 1.68 pivot and then to 1.6557 before the domestic open. The latter was broken, and made a repeat appearance as a ceiling at 9:30am as a weaker cash open for stocks helped yields lower and MBS prices higher. Most recently, headlines about the indecisiveness that characterizes the Spanish bailout have helped bond markets maintain a bid and leave Fannie 3.5 MBS 3 ticks improved at 105-00
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Pricing as of 11:09 AM EST
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Bond Markets Bounce Back (Again) On Evolving Spain Bailout News
After clawing back to breakeven levels from much weaker territory overnight, bond markets weren't eager to progress into better territory as a few big block trades pushed yields higher just after 9am. The domestic stock market open helped things moderate, and 10yr yields held supportively at 1.6557 and Fannie 3.5's at 104-26.
With an empty data calendar today, markets are tuned-in to the Spain bailout information/reaction, where conflicting headlines and midstream changes of plans are causing renewed safety buying in Treasuries, bringing MBS along for the ride.
Most recently, it was the flip-flopping on the decision of which EU bailout entity will fund the Spanish bailout that helped bond markets solidify a bounce back that already seemed to be in progress. It was thought earlier that the ESM would be the more likely source for funding (read more...
), but wires out just after 10am suggested that the bailout could come instead from the EFSF in the form of bonds--similar to the Greek recapitalization--that could then be taken over by the ESM.
10yr yields fell from 1.63 to 1.615 on the news. Fannie 3.0's are up 2 ticks on the day at 102-12 and 3.5's up 2 ticks at 104-31.
For the record, we're not convinced that the post-10am movement is due to the EFSF headline itself (it does make things a bit more complicated, not to mention that the Finnish government really doesn't care to take part in an EFSF-funded bailout without additional guarantees), or simply the lack of a forceful and unwaivering response in general.
Bond Markets Bounce Back After Significant Overnight Weakness
Earlier this morning during Asian trading, things were decidedly weaker as noted in the Week Ahead
(also linked below). In it, we note that it's not uncommon to see things bounce back in the domestic session after events such as the weekend's Spanish bailout festivities cause the overnight session to get off to a rocky start.
That has indeed been the case today as the seemingly overdone selloff in the Asian session was met with strong support at the lows, ultimately resulting in the domestic session opening up in roughly neutral territory vs Friday's latest levels. Fannie 3s and 3.5s are 3 and 2 ticks better respectively and 10 year yields are back under 1.63 after rising into the 1.7s overnight.
Although the remainder if the week is an exception, there's no scheduled economic data today, leaving markets to further hone in on their preferred levels in response to a very much 'as expected' Spanish bailout.
Live Chat Featured Comments
Matthew Graham : "RTRS - USE OF ESM PREFERRED CREDITOR STATUS NOT ENOUGH TO TRIGGER CREDIT EVENT, IF ESM FUNDS SPANISH BANK BAILOUT -ECB'S COENE "
Matthew Graham : "RTRS - NO LINK BETWEEN SPANISH BANKING BAILOUT AND POSSIBLE REVIVAL OF ECB'S BOND BUYING -ECB'S COENE "
Ira Selwin : "Unless the loan closed in the first week of May, it probably wont be insured/endorsed before 5/31"
Ira Selwin : "After the loan funds, it takes a few days for MIP to be paid. Loan can't be insured for another 7 business days after that. "
Ira Selwin : "I think most wont be endorsed."
Gaius Rossini : "what % of loans closed in May '09 do you guys think will not have endorsement on or before 5/31?"
Matt Hodges : "correct"
Brayden Alexander : "FHA loan closed 5/7/09. Most like will not have the endorsement date needed. Correct?"
Paul Carlin : "Have have been stacking processed files, just waiting for case numbers. Pulling 10 case numbers this morning. "
Victor Burek : "not really, the inability of rolling anything in is taking away much from the new program"
Gaius Rossini : "so it's the 11th today... are all you FHA originators crazy busy today with calls?"
Matthew Graham : "RTRS - SPANISH BAILOUT COULD LATER BE TAKEN OVER BY THE ESM, BUT EXTENDED LOANS WOULD NOT BECOME SENIOR TO OTHER DEBT-EU OFFICIAL "
Matthew Graham : "RTRS - EURO ZONE MONEY FOR SPANISH BANK RECAP COULD COME FROM EFSF TO AVOID ESM'S PREFERRED CREDITOR PROBLEM-EU OFFICIAL "
B-C : "plus 30 days of interest "
Brayden Alexander : "Paul, just principal balance, minus ufmip refund, plus new ufmip? "
Paul Carlin : "You can do the NOO stream, just inform them they might have to bring a little more to the table. "
Paul Carlin : "Mostly, but the main kicker is that nothing can be added to the loan, not even the 60 days of interest. "
Brayden Alexander : "There is no rule against a NOO FHA streamline are there? Regular guidelines apply correct?"
Matthew Graham : "ah... two more big block trades in futures just reported at 9:07am. These are almost certainly behind the weakness."
Matthew Graham : "Not seeing anything event-related. Just a big trade in futures at 9:05 that made all the other kids on the playground want to play the same game for a few minutes. Support is in place for now at 1.6557"
Paul Carlin : "?"
Paul Carlin : "Why the sudden red"
Matthew Graham : "Happy to help"
Andy Pada : "ha...thanks MG"
Andy Pada : "Was I imagining that the 10 year was trading at 1.72 last night?"
Jeff Anderson : "Back in the trend, right? "
Andy Pada : "10 Year not doing as bad as last night"