ECB Pres Mario Draghi was the subject of our discussion yesterday afternoon after his impassioned speech in which he declared that the ECB would "do what is necessary to preserve the Euro and believe me, it will be enough." Bond markets did a generally decent job of taking that in stride but Draghi was back in the news again today. The first occasion was in the overnight session, and "the lesser of two evils" as far as MBS watchers were concerned when French newspaper Le Monde hinted that Draghi would meet with the German Central Bank, ostensibly to discuss some form of bond buying. The death knell for bond markets arrived late in the session (just before 2pm New York time) when "sources" were quoted saying that Draghi would indeed meet with the Bundesbank and further enumerated possible outcomes, including ECB bond-buying, a rate cut, or another long-term refi operation (or "LTRO." They've done two of these so far with debatable impact).
Volumes surged and bond markets sold off ass what had been "threats" in the previous session appeared to be turning into something more substantive. Despite the selling, both MBS and Treasuries were able to corral themselves into orderly sell-offs with long term trends intact. Here are Fannie 3.0 MBS:
and 10yr yields with the trend channel overlaid and a 30-day moving average, just for kicks:
Next week is anyone's guess given that we'll get the all-important FOMC announcement, but by way of an early indication, these technical events referenced in the charts above are better than a poke in the eye as we head into the weekend. In all likelihood, today's selling will wind up being just another attempt to throw us from the saddle when we can keep riding if we hold on a bit longer (like March), but the bronco should still be respected, even if we don't agree with the underlying reasons for it's bucking.
In other words, some 'stuff that hasn't even happened yet regarding potential ECB actions' isn't enough and can't ever be enough to fundamentally alter Europe's economic destiny, but we will respect the fact that they've altered how that destiny is traded, at least in the short term. We'll have to wait to see if FOMC corroborates or contradicts these moves next week. Until then, it makes sense to to protect your pipelines as needed. The ride's not necessarily over, for better or worse.
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 4:06 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
MBS, Treasuries Fighting Back Extremely Well
Since the damage is already done in terms of negative reprices, this is more an FYI for our members who aren't glued to the charts in the dashboard at the moment that the world does not currently appear to be eroding under our feat--at least not as much as it had been about 30 minutes ago.
After breaking lower through the critical 103-10 technical level, Fannie 3.0's have not only regained that footing, but have further retraced to hold the 103-17 level for now. These were our two big negative lines in the sand today and now we're back over them.
10yr yields have similarly made it back to slightly less panicky territory. There are two ways to look at the technical support levels currently in play. But if we're viewing 10's in the same lens as MBS, then it makes sense to consider the long term trend of improvement from March/April. The higher end of that trend channel passes through 1.549 today and we're currently at 1.5463. That would be great territory to be in when we hit the official TSY close in 40 minutes, at least from a technical standpoint.
Moral of the story, things are less dire than they were previously, even though current levels would still be the worst day of selling for 10's since the last time the bronco tried to buck us off in mid-March. The "less dire" message doesn't have much of an implication for reprices as slow lenders might still hit us and fast lenders probably aren't feeling like repricing positively yet. Consider this more of a mental health update. We promise not to send the "Hang in There" kitten poster.
Next Reprice Risk Level Taken Out. Real-Deal Sell-Off
Fannie 3.0's have already broken below the 103-10 technical target which lies along the lower edge of the long term trend channel stretching back to March/April. Could we have earned these losses back by the middle of next week? Yes, that's possible, but it's also probably a good time to lock if you're not frozen out of pricing at the moment, in case we don't have those gains back.
If we DO make it back to previous territory, today will stand out as the day we got bucked off the bronco when we could have kept riding, but unfortunately, there's no way to know that it's safe to do so at the moment.
Another Draghi Bomb, Big Moves, Big Volume, Serious Reprice Risk
ECB Pres Draghi will talk to head of Bundesbank to talk about ECB options to fight debt crisis, among options, = bond purchases, interest rate cut and new LTRO - Bloomberg
Fannie 3.0's down to 103-13. First risk level breached. 103-10 is even worse, but we're not there yet. Markets are going relatively nuts though. Reprices are a much greater risk than they have been yet today, though we'd emphasize that it's not even more than 5 minutes old.
Reprice Risk Danger Zone Amid Snowball Selling
Fannie 3.0's just hit the 103-17 level again, which rests on an intermediate trend boundary and is our first major reprice risk target for the day. Simply hitting it and holding steady could be cause for some of the "early crowd" lenders to reprice for the worse, but if we subsequently break through to lower prices, those risks will increase .
Snowball selling is driving trade at the moment with no new fundamental developments nominating themselves as scapegoats for this most recent leg down. So far, it looks like we may see a fight for a supportive bounce here for bond markets, but too soon to assume it will continue to be the case.
Live Chat Featured Comments
Jason York : "REPRICE: 3:32 PM - Plaza Worse"
Michael Owens : "REPRICE: 2:05 PM - NYCB Worse"
Brent Borcherding : "I locked a couple timely ones, prior to reprices, if I'm locking, most likely, in the next week, now is the time."
Adam Quinones : "almost 4bn"
Adam Quinones : "huge selling from originators."
BVG : "REPRICE: 2:04 PM - Interbank Worse"
MC : "REPRICE: 2:03 PM - Flagstar Worse"
Tom Bartlett : "Santelli just said the micophone is the ECB's best friend!! too funny"
Tom Bartlett : "We have not had a good down 24 day in a long time!"
Tom Bartlett : "REPRICE: 1:54 PM - 360 Mortgage Worse"
Jason Wilborn : "loved locking I guess"
Jason Wilborn : "locked* 5-6"
Jason Wilborn : "I coud have loved 5-6 deals since this happened"
Matthew Graham : "was above average already, then boom. "
Adam Quinones : "huge volume in TSYs "
Chris Kopec : "REPRICE: 1:53 PM - Caliber Funding Worse"
Matthew Graham : "Germany sees the European periphery going down in flames, but as soon as the embers start smoldering on their own leiterheusen (not looking up spelling, sorry)--and we got a sneak peak with the Moody's ratewatch negative--they'll capitulate. "
Andy Pada : "I don't think we should be so cavalier about Draghi and his new posture. If anything, it has disrupted our slow sideways range. That alone should make us a bit more vigilant."
Victor Burek : "merkyl doesnt want a euro break-up...but german constitition wont allow eu to print and buy"
Jill Statz : "REPRICE: 1:50 PM - Provident Funding Worse"
Matthew Graham : "Germany doesn't want a Euro break-up. Germany might stand on a sinking ship longer than we might think is rational, but I don't think they intend to drown. Just a matter of when they break."
Eric Franson : "REPRICE: 1:49 PM - Wells Fargo Worse"
Victor Burek : "gonna have lunch and beg and plead Germany to buy bonds...Germany will refuse..back to square 1"
Jason Adams : "we needed a day like today to give us somethiing to talk about. "
Chris Kopec : "This afternoon is a good reminder that these rates are as dependable as light bulbs."
MMNJ : "i'm getting seasick"
Matthew Graham : "I don't disagree jw, with the "wake me up when something actually happens" part of what you're saying"
Jason Wilborn : "it is a meaningless headling IMO, travelling somewhere to talk to someone meand diddly - let me know how the talk goes once you arrive safely "
Victor Burek : "so from the ECB...nothing to see..it is usual practice to meet or talk with members"
Matthew Graham : "The bronco is bigger and stronger than you or I can be. pretending like it's not is just "posturing" in the hopes of a lucky guess and braggin rights. "
Victor Burek : "meaningless...."ECB spokeswoman said in an e-mailed statement that it is usual practice and nothing special that Draghi meets or talks with the members of the Governing Council. She declined to comment on the content of any talks.""
Matthew Graham : "ha... ECB pres setting a lunch date with Bundesbank is not a meaningless headline. I'm not saying that Draghi will necessarily heroically accomplish all that was implied with his impassioned speech y'day, but this is a real development and depending on your time frames, you can't rule out the risk that FOMC exacerbates the trend. History has shown us it probably won't, but currently levels are no time to be complacent about it"
Nader Abadi : "Was going to Cedar Point tomorrow; but who needs a roller coaster when I'm on one right now."
Jason Wilborn : "why would you not float"
Josh Stika : "Vic is my man"
Andy Pada : "I will say that VB's wait until Monday has proven correct for the past 5 weeks "
Victor Burek : "again..what has changed?"
Victor Burek : "all loans within 15 are locked..floating everything else"
Victor Burek : "yep"
Michael Owens : "Still floating Vic?"
Brent Borcherding : "85"
Jason Wilborn : "passed DOW 13K like it was doing 65 on the freeway"
Andy Pada : "This does set up for a major whiplash effect"
Jason Wilborn : "you have to change the structure of the EU before the ECB can really do anything significant"
Andy Pada : "Agree as well"
Jason Wilborn : "totally agree with you MG"
Matthew Graham : "i would say "buying time." No one is under the illusion that the ECB can do anything to reverse the crisis. But they can cause adjustments in how the crisis is traded."
Geoff Allison : "Doesn't it seem like only words make the bond market slump and the data brings it right back?"
Victor Burek : "as always..he will over promise, under deliver"
Jason Wilborn : "Draghi is doing one thing and one thing only - he is working on confidence"