After some morning weakness, bond markets were able to get back to relative flatness heading into Bernanke's Jackson Hole speech, and pretty much ignored the morning's other economic data. Bond markets were choppy within a range very briefly in the immediate wake of the speech, but soon resolved to the upside, taking MBS to new highs on the week and the highest prices for Fannie 3.0s since August 6th. 10yr yields broke yesterday's resistance floor and even briefly made it into the 1.5's in 10yr's. Stocks dipped big initially and are now back to higher levels than before the speech. So for now, it looks as if Bernanke has done the miraculous job of appeasing both sides of the market. Either that, or both sides of the market were sidelined waiting for more disconcerting news and both are coming back in with a relief bid. Either way, MBS up 8 ticks on the day and a few positive reprices trickling in... We'll take it.
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 11:05 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
FHFA Announces Another 10bp Increase In G-Fees
The Federal Housing Finance Agency (FHFA) today announced that
it has directed Fannie Mae and Freddie Mac to raise guarantee fees (g-fees) on single-
family mortgages by an average of 10 basis points. The changes to g-fee pricing represent a
step toward encouraging greater participation in the mortgage market by private firms, a
goal set forth in FHFA’s Strategic Plan for Enterprise Conservatorships.
“These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might
expect to see if mortgage credit risk was borne solely by private capital,” said Edward J.
DeMarco, Acting Director of FHFA.
For loans exchanged for mortgage-backed securities (MBS), the increase will be effective
with settlements starting Dec. 1, 2012. For loans sold for cash, the increases will be effective
with commitments starting Nov. 1, 2012. Fannie Mae and Freddie Mac will work directly
with lenders to implement the changes.
Full Text Of Bernanke's Jackson Hole Speech
As I have discussed today, it is also true that nontraditional policies are relatively more difficult to apply, at least given the present state of our knowledge. Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.
As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.
Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
Bond Markets Choppy Following Bernanke's Prepared Remarks
Essentially echoing the previous FOMC Announcement, Bernanke noted the Fed will provide accommodation as needed and reiterated the importance making further progress on growth and jobs.
In general, Bernanke danced a delicate dance, neither unveiling or hinting at anything beyond that which was already known, but also keeping the door perfectly open to the announcement of additional easing at the upcoming FOMC meeting. Notably, Bernanke mentioned that the first two rounds of Fed asset purchases may have raised US Output by almost 3 percent and lifted employment by 2 million jobs.
Bond markets have been choppy following the release of the prepared remarks with MBS and Treasuries both briefly turning red but now back into the green. Fannie 3.0's are up 5 ticks on the day at 103-14 and 10yr yields are down just over a bp at 1.6096.
All in all, Bernanke did a fantastic job of delivering a speech that was "as-expected" as possible. Barring any bigger swings between now and then, we're now waiting for meaningful responses in the questions/answers session.
ECON: Chicago PMI Slightly Lower, But Employment Component Stronger
- PMI 53.0 vs 53.5 consensus
- Employment indext 57.1 vs 53.3 last time
- No significant market reaction. Tame headline balaned by stronger employment component.
The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER posted a small gain in August but remained steady for the last four months. Among the Business Activity measures, declines into contraction for both Order Backlogs and Supplier Deliveries offset minor gains in Production, New Orders, and Employment in August.
• EMPLOYMENT recovered more than half of last month's slowing;
• PRICES PAID slight gain;
• ORDER BACKLOGS lowest since September 2009;
• SUPPLIER DELIVERIES lowest since July 2009. BUYING POLICY:
• PRODUCTION MATERIAL and M.R.O. SUPPLIES lead times decreased.
Bond Markets Open Weaker, Battling Back To Nearly Unchanged Levels
Treasuries are quickly rallying back to something closer to 'unchanged' levels vs yesterday after rising several bps to just under 1.66 in 10yr yields during the European session. 10's are now back down to 1.637 and after opening slightly weaker Fannie 3.0 MBS are 1 tick into the green at 103-10.
Volume took a step back from recent sessions overnight, despite a fairly robust offering of data and headlines as markets are ostensibly circling the wagons ahead of Bernanke's Jackson Hole speech. The WSJ notes that Columbia economist Michael Woodford (who has spoken at Jackson Hole before), will be there again today and is likely to discuss the topic of a recent paper citing the need for more transparent policy communication and stronger commitments.
ECB's Coere notes the need for budget integration before Euro bonds, but also said the ECB is working on a bond-buying program according to Bloomberg. Nothing new here. Reuters notes that Bundesbank chief Jens Weidmann (key opposition of looser ECB policy) is threatening to resign both literally and figuratively in similar fashion to Axel Weber and ECB's Stark (i.e. "we're not getting our way, so see ya!").
Relatively tame data out of Europe overnight, including flat inflation, unchanged unemployment, and weaker German Retail Sales, left the focus on the various headlines, and the decline in volume is our first clue that markets are waiting for Bernanke at 10am.
Before that, Chicago PMI hits at 9:45am and Consumer Sentiment at 9:55. After a mostly sideways week, today is the first good opportunity for markets to take a lead-off from the safety of that base, though no guarantee we'll actually see that happen. Heavy hitters are yet to come in the two weeks ahead.
Live Chat Featured Comments
seth palagyi : "fhfa said avg of 10 bps gfee raise, fannie just sent email stating they're enforcing 12 bps on >15 yr terms and 6 bps for <=15 yr terms. dec for mbs and nov for cash window"
Gaius Rossini : "http://www.fhfa.gov/webfiles/24259/Gfee083112.pdf"
Gaius Rossini : "*FANNIE MAE, FREDDIE MAC TO RAISE GUARANTEE FEES 10 BASIS POINTS"
Matthew Graham : "RTRS - BERNANKE SAYS FIRST TWO ROUNDS OF FED ASSET PURCHASES MAY HAVE RAISED U.S. OUTPUT BY ALMOST 3 PCT AND LIFTED EMPLOYMENT BY 2 MLN JOBS "
Matthew Graham : "RTRS- BERNANKE: UNLESS ECONOMY BEGINS TO GROW MORE QUICKLY, JOBLESS RATE LIKELY TO STAY ABOVE LEVELS CONSISTENT WITH MAXIMUM EMPLOYMENT FOR SOME TIME "
Matthew Graham : "RTRS- BERNANKE URGES EUROPE TO PRESS AHEAD WITH POLICY INITIATIVES TO RESOLVE CRISIS, SAYS RECENT PROPOSALS HAVE BEEN “QUITE CONSTRUCTIVE” "
Matthew Graham : "RTRS - BERNANKE SAYS AS FED ASSESSES POLICY, MUST NOT LOSE SIGHT OF "DAUNTING ECONOMIC CHALLENGES" CONFRONTING UNITED STATES "
Matthew Graham : "RTRS- BERNANKE SAYS COSTS OF NON-TRADITIONAL POLICIES APPEAR MANAGEABLE, SHOULD NOT RULE OUT FURTHER USE IF ECONOMIC CONDITIONS WARRANT "
Matthew Graham : "RTRS- BERNANKE SAYS, IN CONSIDERING FURTHER EASING, FED TAKING DUE ACCOUNT OF UNCERTAINTIES AND LIMITS OF ITS POLICY TOOLS "
Matthew Graham : "RTRS- BERNANKE SAYS FED WILL PROVIDE ADDITIONAL POLICY ACCOMMODATION AS NEEDED; IMPORTANT TO MAKE FURTHER PROGRESS ON GROWTH, JOBS "
Matthew Graham : "the most significant thing about this Consumer Sentiment report seems to be that it serves as a good reminder that there are only 5 minutes to go until Bernanke (2.5 min now)"
Matthew Graham : "THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX AT LOWEST SINCE DEC 2011 "
Matthew Graham : "THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX AT HIGHEST SINCE JAN 2008 "
Matthew Graham : "THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT INDEX FINAL AUGUST 74.3 (CONSENSUS 73.6) VS PRELIMINARY AUG 73."
Victor Burek : "text for bernankes speech released at 10am?"
Matthew Graham : "RTRS - CHICAGO PMI EMPLOYMENT INDEX 57.1 IN AUGUST VS 53.3 IN JULY "
Matthew Graham : "RTRS - CHICAGO PURCHASING MANAGEMENT INDEX 53.0 IN AUGUST (CONSENSUS 53.5) VS 53.7 IN JULY "
Matthew Graham : "this is interesting though as it lines up with what Woodford has said in the past and might say again today: RTRS- WILLIAMS SAYS HOPEFUL FED CAN IMPROVE COMMUNICATIONS TO MORE ACCURATELY REFLECT POLICY -CNBC "
Matthew Graham : "RTRS- FED'S WILLIAMS SAYS WILLING TO PUSH OUT LOW-RATES GUIDANCE TO 2015 "
Matthew Graham : "RTRS- WILLIAMS SAYS FED SHOULD BE MOVING TOWARD 'OPEN ENDED' QE APPROACH "
Matthew Graham : "RTRS- FED'S WILLIAMS SAYS ADDITIONAL ACCOMMODATION WOULD HELP BOOST THE ECONOMY; WORRIED ABOUT STALLING "
Matthew Graham : "RTRS- FED'S WILLIAMS SAYS GROWTH TO STAY AROUND 2 PCT WITHOUT POLICY ACTION "
Matthew Graham : "RTRS - FED'S WILLIAMS SAYS QE HAS BENEFITS -CNBC "