Bad, Worse, Worst... That's how we'd characterize today's price action in MBS, Treasuries, and German Bunds respectively. The latter is getting crushed today, up to the highest yields since late May and along with the stock lever, has been putting pressure on US Treasuries. Some note upcoming auctions weighing on Bunds (both Bund auctions and EFSF auctions), but aren't US 10yr Treasuries facing the same issue tomorrow? In that sense, we're impressed that 10's have hold their ground as well as they have, but also concerned that bond markets have begun "ratcheting" to higher yields after bottoming out on June 1st. That said, MBS have been another degree more insulated from the weakness. Although we're definitely down on the day, 3.0's and 3.5's have done a great job holding technical, sideways support at 102-02 and 104-22 respectively. Breaks below there that last for more than a few minutes are good indications of increased reprice risk today.
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 11:06 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Bond Markets Playing Defense Ahead Of Auction Supply
The last 10yr Note auction on May 9th went off with a high yield of 1.855. So with 10's trading in the high 1.5's to low 1.6's y'day, there's understandably a bit of uncertainty as to how well tomorrow's auction will go at these levels. Yields rose somewhat abruptly shortly after the open this morning but BEFORE the 8:30am econ data, and without any discernible event-based motivation.
We could be seeing a few things here. On the one hand, there's the classic "auction concession" call whereby we'd expect to see some weakness heading into a round of supply. The fact that 10's mad a rather abrupt move without much connection to stocks (and the disconnection was evident in the overnight session as well after a much more connected day y'day) suggests that we can't rule the "concession contention" out.
Then there's the simple "volatility and technical" argument. Looking at the extremely-well-connected German Bunds and US Treasuries, there's a clear sense that yields bottomed out on 6/1 and have been in a very choppy pattern of consolidation since then with progressively higher lows and highs coming in y'day's overnight session very close to late May's stronger levels.
Bunds have definitely leaked higher at a faster pace than 10yr Treasuries overnight and to an even greater degree than an auction concession, this looks like it's pulling things higher at the moment. Bunds are at their highest yield since late May--a whopping 1.4% while domestic 10yr yields have been much slower to journey back to recent highs at 1.728, currently trying to establish support around 1.64.
In a technical sense though, it seems infinitely possible that something around 1.68 would be a MILD short term ceiling heading into tomorrow's supply--at least in a purely technical sense. 1.71% would be the next candidate for a trend-based supportive ceiling and we'd reassess if things got any weaker than that.
MBS, for their part are doing their best to fight off the ill effects of the Treasury slide, but that's about the best thing that can be said about them. Even though MBS are selling off to a lesser degree, Fannie 3.5's are still down another 8 ticks IN ADDITION to last night's roll, currently at 104-23. Fannie 3.0's are down 12 ticks at 102-02.
Tradeflows continue to arrive in big chunks with steady activity in between. The bias is decidedly negative this morning and for lack of a more complicated assessment, it looks like markets have agreed that yesterdays lowest-yield levels were some sort of tactical extreme for the "risk-off" trade, which in itself was a correction to the overnight "risk-on" trade of the Spanish bailout news.
On the bright side, if we're going to experience price losses in MBS, it's better to see it before rate sheets. If bond markets and MBS can hold their ground near current lows, it will make for a relatively risk-free remainder of the trading day in the sense that lenders are less likely to reprice negatively when the days first rate sheets are released shortly after hitting session lows.
ECON: Import Prices In Line With Expectations, Exports Lower
* Import Prices -1.0, as expected
* export prices -0.4 vs -0.1 consensus
* petroleum prices -4.2 pct, most since May 2010
The price index for overall imports fell 1.0 percent in May, the largest one-month drop since
the index declined 1.2 percent in June 2010. Prices for U.S. imports also decreased over the past 12 months,
falling 0.3 percent, the first year-over-year decline for the index since import prices fell 5.6 percent between
October 2008 and October 2009. The decrease over the May 2011-12 period was led by lower fuel prices
which more than offset an increase in nonfuel prices.
Export prices fell 0.4 percent in May after increasing 2.0 percent over the first four months of
2012. The May decline was driven by lower prices for nonagricultural exports, which more than offset
increasing agricultural prices. Overall export prices edged down 0.1 percent between May 2011 and May
2012, the first 12-month drop in the index since a 3.6 percent decrease for the year ended October 2009.
The 12-month decline was led by lower agricultural prices.
Live Chat Featured Comments
S John Murray : "2075 exterior finding is great as long as lender accepts but be careful, if any of those those three housing trends boxes on page one of appraisal are checked for declining , over supply , or over 6 months a full appraisal is required you want to make sure property value is stable or increasing, demand/supply is shortage or in balance and marketing time is under 3 months or 3-6 months "
Victor Burek : "yep..but about $150 vs $75"
Jason York : "gotcha, thanks, so pretty much a PIW, as long as the house is standing"
Victor Burek : "but doesnt give a value"
Jeff Anderson : "Exterior Only. Accepts the value but wants to make sure the property is still standing."
Victor Burek : "appraiser drives by the property and takes a photo to confirm home is not in disarray"
Jason York : "or what exactly is that?"
Jason York : "what does that do?"
Victor Burek : "i havent..but many drive by no values"
Jason York : "is anyone seeing any PIW's on non DURP refis?"
Steven Stone : "you can think of the roll much like a dinner roll, by the time it comes to the table, its already baked (in)"
David Gaffin : "Thanks for the post Matt, it clarified things for me"
Matthew Graham : "the red/green changes you see in MBS are POST-roll (thanks to AQ actually... it didn't used to be that way)"
Adam Quinones : "roll related weakness should be baked in already"
Gus Floropoulos : "prob be worse, 2ndary will take a defensive position due to 10yr action"
David Gaffin : "or might it be flat, based on roll expectation?"
David Gaffin : "So dumb question on the roll. Is pricing likely to be worse by 18-20bps or so due to the roll or is it 10 year leading the weakness?"
Matthew Graham : "RTRS - MERKEL SAYS BETTER EUROPEAN BANKING SUPERVISION REQUIRES GIVING UP MORE NATIONAL SUPERVISION "
Matthew Graham : "RTRS- GERMANY'S MERKEL SAYS GERMANY CANNOT AGREE TO THINGS THAT WOULD PUSH EUROPE INTO AN EVEN WORSE DISASTER "
Matthew Graham : "RTRS - GERMANY'S MERKEL SAYS DISCUSSING EURO BONDS TAKES US DOWN THE WRONG PATH "
Matthew Graham : "RTRS - U.S. MAY IMPORT PRICES DROP FIRST SINCE OCT 2011, LARGEST SINCE JUNE 2010 "
Matthew Graham : "RTRS- U.S. MAY PETROLEUM IMPORT PRICES -4.2 PCT, LARGEST DECLINE SINCE MAY 2010, VS APRIL -0.4 PCT "
Matthew Graham : "RTRS - U.S. MAY EXPORT PRICES -0.4 PCT (CONSENSUS -0.1 PCT) VS APRIL +0.4 PCT (PREV +0.4 PCT) "
Matthew Graham : "RTRS - U.S. MAY IMPORT PRICES -1.0 PCT (CONS. -1.0 PCT) VS APRIL 0.0 PCT (PREV -0.5 PCT) "