Weaker Chinese Trade data overnight helped bond markets continue the bounce back that began after yesterday's 30yr Bond Auction. MBS managed to open the session in slightly stronger territory than yesterday's close EVEN AFTER factoring in the effects of the roll. But a general lack of participation or enthusiasm paved the way for prices to drift lower into the afternoon. This leaves a fair bit of uncertainty as to whether or not we've actually seen the first stages of a bounce back to stronger levels or merely another head fake inside an ongoing trend of weakness.
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
MBS Hit Lows Of The Day In Post-3pm Volatility
Today has seen relatively low volume in general, but even lower this afternoon. This is fairly normal for Fridays, but today's is fostering a bit of a sell-biased environment for the market participants that remain. MBS hit their lows of the session just after the 3pm Treasury close, a typically volatile few minutes. Because of that, we wouldn't consider this a panic lock situation, but would note the distance we've fallen from the morning range at the highs. The degree to which negative reprice risk exists depends largely on the lender in question and we'd think the characteristically faster-acting lenders are probably getting close.
Bond Markets Microscopically Weaker, But Mind 'The Drift.'
There are tick charts and then there are charts with predefined intervals. Tick charts advance 1 tick of physical chart space with each new trade or quote. Thus, an incredibly busy hour could occupy the same amount of horizontal space as an incredibly slow four hours. Most charts, however, are "minute, hour, or day" charts meaning that any ticks occurring within those time intervals will not be shown.
It's with this concept in mind that we'd relate movement in MBS this morning. Whereas the "minute" chart looks like a semi abrupt drop and firm ground-holding just after 10am, the tick chart shows a gradual drift down from morning highs to current levels. Granted, we have seen support come in at 103-07, but that's already 5 ticks off from 103-12. More importantly, it's not as if MBS moved to 103-07 quickly and held their ground decisively.
There's a firm downtrend (albeit in low-ish volume) intact resting along the highs of the day. This downtrend soon collides with 103-07 and one of them has to win. If 10yr yields keep doing their own "drifting" higher, and MBS drift any lower, we could soon be considering negative reprice risk.
The moral of this story is not to say that reprice risk is here now, but simply not to tune out due to the positive morning and relatively flat levels. Also, we don't want to read too much support into the bounces at 103-07. It's looking more likely that we'll break lower, and if we do, reprice risk will increase.
Live Chat Featured Comments
Ira Selwin : "So yes Chip, unfortunately that is correct"
Ira Selwin : "3 days if the apr moves by 1/8th"
Chip Harris : "so my lender just realized that they send disclosures out initially without MI on them which has now raised the APR beyond tolerances for a refi that was supposed to close this afternoon. They inituially told me that if the borrower signed the TIL, they they could still close today. Now they are saying RESPA requires that we wait until Tuesday. Is that correct?"
Jason Adams : "I locked two today.. "
Michael Mitchell : "Love me some flat interest rates..."
Matthew Graham : "Looks like most lenders are right back to Monday pricing. Seen a few exceptions but not many"
Mike Drews : "you know what...you're right..it's the drive by's that are going away."
Jason Adams : "I had a drive by appraisal done last month that was comical. The house sits way off the road and cannot be seen from the street... The drive by appraisal should woods..."
Victor Burek : "drive by appraisals are going away..didnt know piws were"
Jason Adams : "Du is doing away with PIW's? I must have missed that memo"
Mike Drews : "depend on location too...but keep in mind that that will all go away soon and DU won't allow PIW's when the new update hits"
Michael Gillani : "Wow, I can't get a PIW on a 40% ltv 795 fico rate/term through DU, let alone cash-out. That sounds odd!"
Ted Rood : "Would be logical for DU to accept value, but will be interested to see what Citi (and your overlays, if any) say about it."
Jason Adams : "DU doesn't show a value but "accepts value" and the code is 357. Both deals are 800+ credit LTV below 65%"
Jeff Anderson : "Have seen nothing but full appraisals on cash out lately. Hope they'll accept it. That would be sweet."
Jason Adams : "We are a corr lender and sell most to Citi. I have a call to see if they will accept it."
Ted Rood : "Will investor accept the PIW? If so, who is investor???"
Jason Adams : "I have recieved 2 PIW's on cash out DU loans this week. Code 357. have you guys seen that?"
Victor Burek : "i agree"
Jamall Singh : "Very good analysis MG"
Matthew Graham : "don't lose sight of the forest for the trees, and all that stuff"
Victor Burek : "okay..despite forward guidenance not being good, despite europe quickly and rapidly falling into recession and despite China slowing very fast...stocks rally with all that?"
Matthew Graham : "a simple look at the long term chart will show you this unequivocally"
Matthew Graham : "It's no longer as simple as it has been with respect to Friday/Monday though. This week, we're presented with a real possibility that we just saw the end of the mid-summer rally, just like 2011.. It popped higher in yield in much the same way and then leveled off, but in that leveling off process, rates got slightly worse before they got significantly better. So risk would have to be balanced vs timing. Thus, the "closing this month" line of thinking, and especially the "closing within 15 da"
Paul L. Martin : "why buy a risky asset when its price will go down?"
Gus Floropoulos : "yes"
Victor Burek : "you think stocks rally further?"
Gus Floropoulos : "the rally will be in riskier assets"
Gus Floropoulos : "i just hate the fact that their will be a late summer rally into the fall and we never know when it will start"
Victor Burek : "europe on vacation"
Andy Pada : "any planned data/news coming from Europe next week? I feel like this has been a Europe-free newsweek."