Bond markets were increasingly punished during the late overnight session as Europe essentially sent "risk-on" after EU Benchmarks paused to consider recent highs in the mid 1.43% range. They bounced hard around 1.40% just after 6am, pulling US Treasuries up with them although them. Treasuries resisted the move surprisingly well considering the looming 10yr Auction tomorrow as well as as a heavy cycle of corporate bond issuance (investors in corporate debt occasionally sell Treasuries to hedge/lock their rate of return on the corporate issuance). Despite that qualitative assessment, the technical landscape is at risk as both Treasuries and MBS are arguably testing breakouts of intermediate ranges. We'd previously noted 1.60% as a line in the sand for 10yr yields and 10's closed today a few bps higher. If they did so tomorrow, the next technical levels--each progressively more serious--come in at 1.67, 1.69, and 1.74+. Definitely a more risky feel to today's levels, but too soon to know if it's a good head-fake or a legitimate shift in the trend.
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 4:09 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
ECON: Consumer Credit Weakest In Eight Months
Consumer Credit rose by $6.46 bln in June vs a revised $16.70 bln in May the Federal Reserve said today. Revolving credit dragged on the forward progress, declining $3.7 bln after increasing by a revised $7.52 bln in the previous month. Non-revolving credit such as auto/student loans grew by $10.15 bln, marking a slight improvement over May's revised $9.18 bln rise.
Overall, however, this is the lowest increase for the report in eight months. Stocks have pared gains in the few minutes following the report as the decrease in revolving credit can be seen as an indicator that consumers are less willing to spend. Bond markets have been relatively unchanged on the news.
MBS At Weakest Levels In A Month, Risking Negative Reprices Already
It greatly depends on what time of morning the lender in question released initial rate sheets, but MBS have already deteriorated enough for, and in a pattern consistent with the possibilities of early negative reprices. Fannie 3.0's hit 1-month+ lows of 103-07 moments ago and 10yr yields continue to snowball higher, hitting 1.6353 into the the conclusion of Fed Twist Buying.
The Twist buying results can sometimes have a slightly positive or negative push on trading levels. Naturally, if that push is negative this morning, it would mean increasing reprice risk. 103-07 is actually RIGHT ON the line of a long term pivot with the highs from early June. So it's the first and best line in the sane for further risk. Every tick down from there would increase reprice risk, with firm support likely at 103-00 to 103-02.
So far we're holding steady in the few minutes since twist buying ended, and Fannie 3.0's have moved up to 103-09, and 10yr yields down to 1.6318.
Live Chat Featured Comments
Matthew Graham : "RTRS- U.S. 3-YEAR NOTES BID-TO-COVER RATIO 3.51, NON-COMP BIDS $46.11 MLN "
Matthew Graham : "RTRS - U.S. SELLS $32 BLN 3-YEAR NOTES AT HIGH YIELD 0.370 PCT, AWARDS 22.25 PCT OF BIDS AT HIGH "
Matt Hodges : "even into that deteriorating market, we saw April-June 2011 (in late 2010/early 2011) as a new opportunity. It allowed many no closing costs refis and purchases, even, as Victor prefers, which set up future transactions"
Matthew Graham : "don't get me wrong Boyke... even the most massive of reversals have to start somewhere, and for many, tactical locking can make great sense into such sell-offs. But for me personally, it will take something more to make me we've seen rates bottom out. I never rule out the possibility, but it feels unlikely."
Brett Boyke : "thanks for walking me off the ledge, after the masacre of 2010, when I hear snoball selling I need a wet wipe"
Brent Borcherding : "If we hit 1.25% later than I think that would be indisputable proof that we did."
Andrew Horowitz : "nah we really didn't i would have been happier staying arund 1.58"
Brent Borcherding : "Had to hit these levels before we get to 1.25%. "
Andrew Horowitz : "Brett all of that has been out there for a while now why do you see any major differenes ...this time"
Matthew Graham : "so far, this bear run for bonds looks exactly like Early June. That was scary, but panned out well. We can use it as a frame of reference to gauge the point at which "we're not in kansas any more." That's gonna take a break of 1.75% for me though."
Brett Boyke : "I hope I'm wrong MG, but I dont have a good feeling about this month. I just think the spector of QE at Sept meeting and bondy buying in EU at Sept meeting are the perfect reason for market optimism"
Matthew Graham : "best we got recently is roughly a 20 calendar day stretch in october 2011"
Matthew Graham : "Wow, you think optimism for an entire month?! we haven't seen that since late 2010"
Brett Boyke : "EU was able to buy another month - everyone will be waiting for the meeting on sept. 6th - until them optimism will rule. Lock accordingly"
Brett Boyke : "I think you guys may be overthinking this a bit - 2 things going on, optimisim that ECB buys bonds and FED injects $800M in liquidity in last 2 weeks = risk on = TSY and MBS sell off"
Andrew Horowitz : "yeah but even with that lowered guidance stocks have rallied since then Vic"
Victor Burek : "forward guidence from companies was not pretty"
Victor Burek : "yep, and s&p at 1405 is not justified"
Matt Hodges : "is Germany justified with negative yield on 2's and below?"
Brent Borcherding : "Yes, I believe 10 yr yield is justified in a shrinking global economy."
Adam Quinones : "..and a 1.50% 10yr yield is?"
philip mancuso : "aq. i'm waiting for the snowball selling of stocks. run not justified"
Victor Burek : "which is why i am here..i am relaxed now, if things worsen, i will no longer be relaxed"
Adam Quinones : "the street has been trading a very long asset to extremely short hedge ratios and we're teetering on a technical breakdown (use MG's pivots). This makes snowball selling a possibility in the near term. Remember two Fridays ago?"
Victor Burek : "haha..let me rephrase, since i am a member of this great site, i can be relaxed"
Matt Hodges : "we've seen movements like this before, Q - not concerned unless it becomes a trend"
Adam Quinones : "sounds pretty relaxed "
Victor Burek : "if ou floated through thursday, you basically floating for a few extra days"
Ira Selwin : "you better hope that next up day comes quick"
Adam Quinones : "Victor Burek
: just at the bottom of range..rally coming "
Gus Floropoulos : "i wouldnt lock today, but on the next up day Ima be lookin to lock"
Victor Burek : "no, should have locked thursday"
Ira Selwin : "You should have locked yesterday "
Victor Burek : "i wouldnt be locking today"
Matt Hodges : "no - victor says lock at 15 days"
Adam Quinones : "everybody seems to be saying float...."
Victor Burek : "no way"
Matt Hodges : "no"
Adam Quinones : "this reminds me of fall/winter 2010"
Victor Burek : "i am?"
Adam Quinones : "you are playing with fire"
Victor Burek : "just at the bottom of range..rally coming"
Oliver S. Orlicki : "vb, wheres our rally"
Brett Boyke : "from Pisani - The next European Central Bank meeting is Sept. 6. Yesterday, The Wall Street Journal had an interview with ECB Governing Council member Ardo Hansson (the head of the Estonian central bank) where he said that purchases made by the European bailout funds (the European Financial Stability Facility and the European Stability Mechanism) could be "substantial" and "sustainable." What about objections from the Germans to making such purchases? Mr. Hansson said, "In the end, everyone has "
Thomas Nelson : "If it's medical, it shouldn't have to go manual."
Thomas Nelson : "Samuel Lee
: Has anyone recently seen notification from FNMA that if a dispute is picked up by DU or is seen on a credit report the loan automatically defaults to a manual u/w with 28/36 DTI restrictions?....................Yes, the reason being is that they are saying that the DU is possibly giving a "false approval"....not factoring the delinquent account in the approval. They aren't talking about credit SCORE but the approval. IF the disputed account is medical, you can win the arguement be"