Today's tricky because the obvious focus had been Bernanke's Jackson Hole speech. So seeing a substantial rally and break away from the recently sideways trend, the logical conclusion would be that the rally must have been driven by the day's big event. In a way, that's true, but it's not because of anything Ben said that increased optimism in bond markets. Rather, he simply moved completely out of the way and REMOVED what had been somewhat of a big consideration for markets so they could, in turn, do their thing. "Their thing," as it happened to be today, was to load up on Treasuries and MBS for month-end portfolio allocations and it now seems that many of them were waiting until after Bernanke to do so. This was likely to be the case when we were rallying mid-day, but then certainly became the case as we continued to rally after the Treasury close at 3pm. The after hours buying signals even more buckets needed filling from the mid to long end of the yield curve. The last alert of the day discusses risks in assuming that such a rally continues on Tuesday, but we'd also balance that against the fact that lenders generally didn't improve rate sheets to the extent suggested by MBS gains. In that sense, we could lose a small amount of ground in MBS over the weekend and still not be looking at much of a change on Tuesday.
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 4:04 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
More Month-End Buying Lined Up After The Treasury Close
We've discussed month-end buying in various contexts in the past and one of them is to fill portfolio positions for investment funds that must be balanced with various indexes. In other words, buyers were forced in earlier in order to get to their required fund allocations before month end. Even when that appears to be the case, it can turn out to be tactical trading that ends up reversing course by the 3pm Treasury close. Different story today as it was all real need-based buying. With just under 2 more hours left to fill last-minute index-filling trades, everyone's cards are being turned face-up, and all of them are "buy."
MBS takes part in this to a good extent and this is where a supply/demand imbalance really shines and helps MBS keep up with the Treasury rally much better than they otherwise would be able to, even though the rally is primarily a function of month-end buying in Treasuries.
First, apparently more than a few accounts saved their month-end house-keeping until after Jackson Hole. We can accept that and indeed, it's one of the reasons we saw today as the first major opportunity to break out of the mostly sideways range since last Thursday. Second, we're running into new, stronger resistance targets here and next week is no longer month-end (obviously). When that temporary demand exits, what's left? Perhaps seeking out the next equilibrium ahead of the week's key events with the ECB and NFP?
It all goes back to the "lead-off" analogy. This one has gotten convincing. The runner is either going to have to commit to moving to the next base or hope for a base-hit. We're cautious about Tuesday for these reasons. Base-hits can't come until the big-ticket events actually start happening. As far as our little base-runner having the resolve to continue in spite of that and in the absence of today's month-end support, it FEELS like a tall order. Not sure if that just means we'll pause sideways or bounce back lower, but the POSSIBILITY that today's momentum isn't guaranteed is worth considering at least.
For now, additional reprices for the better are a fair expectation, depending on the lender. Sadly, we may not see as many as we otherwise would considering the lateness in the day and the 3-day weekend ahead.
Spain creates bad bank, paves way for rescue funds
(Reuters) - Spain overhauled its banks for the fifth time in three years on Friday to secure up to 100 billion euros ($125 billion) in European aid for lenders crushed by bad loans from an extended property market crash.
The government created a so-called bad bank to take over tens of billions of euros in defaulted loans and unsaleable property and to accelerate the clean-up of the banking sector, Economy Minister Luis de Guindos said.
Spain's banks are at the heart of the euro zone debt crisis, but the rescue has not cleared up doubts over the country's finances and the government is now under pressure to ask for a full sovereign bailout like Greece or Portugal.
Gains Holding Following Bernanke Speech, Volatility Brought Buyers
Month-end retail buyers took the opportunity to buy the first major dips during the post-Jackson Hole volatility, and again bought on next dip just after 11am. That support helped MBS and Treasuries to their best levels since early August as the sideways grind sees a minor break in bond-market's favor.
After holding gains, headlines are helping bond markets eke out additional positivity after Spain's Bankia reported a €4.448 bln loss, further reinforcing the challenges facing Spain and the likelihood that Bankia will make use of emergency liquidity that is already set aside. Previously, Bankia said it would wait until new stress tests came out at the end of September before tapping the liquidity offer.
Stocks shot just over 5 points lower in S&Ps and 10yr yields dipped into the 1.57's. Fannie 3.0 MBS are up 11 ticks on the day now to 103-20. We've already seen a few positive reprices on the day, but recent gains make additional reprices an ongoing possibility.
Live Chat Featured Comments
LSP : "REPRICE: 3:44 PM - Chase Better"
LSP : "Great baseball analogy in the MBS alert. Those on the fence about locking should take a look. Don't get stuck on third base when you could have stolen home."
Matt Hodges : "never wrong to lock when you should have floated; it beats the alternative, TB"
Bromi Krock : "TB if the deal works and the client is happy then why wait."
Matthew Graham : "depending on the lender, I'd try to wait for as many of those things that LSP just posted as possible tho"
LSP : "REPRICE: 3:32 PM - PennyMac Better"
Curt Sandfort : "check the econ calendar tab also"
LSP : "REPRICE: 3:32 PM - USBank Better"
Matthew Graham : "so no, not total moron. "
Matthew Graham : "I'd be more predisposed to lock this afternoon than I would have been if we sold off today."
Tom Bartlett : "Hi MG..Am I a total Moron if I lock 3 loans right now before the long w/e? I know they are hedging and not giving as much as they should. Any major econ numbers before tuesday ratesheets arrive?"
Raul Lopez : "REPRICE: 1:29 PM - Sun West Mortgage Better"
Jason York : "REPRICE: 1:23 PM - Plaza Better"
David Zilkha : "Retail"
Ira Selwin : "As a heads up that 2nd Chase re-price is not Correspondent."
David Zilkha : "REPRICE: 1:18 PM - Chase Better"
Andy Pada : "I'm locking a few more today."
Victor Burek : "no way i would lock today, unless got a huge reprice better"
Scott Rieke : "Tuesday could be fun - do you lock now? There will be vol, just not sure which way"
Blair : "106 to end the week would be nice"
LSP : "That was quick. Thought they'd be in siesta mode."
LSP : "REPRICE: 12:26 PM - Wells Fargo Better"
Matthew Graham : "RTRS - SPAIN'S FROB SAYS CAPITAL INJECTION IN BANKIA BKIA.MC IS ADVANCE ON EUROPEAN AID FOR THE BANK "
Matthew Graham : "well that was fast: RTRS - SPANISH FROB SAYS TO INJECT CAPITAL IN BANKIA BKIA.MC IMMEDIATELY "
Matt Hodges : "very good news for us"
Matthew Graham : "2 days ago: (Reuters) - Nationalised lender Bankia BKIA.MC is expected to post first-half losses of more than 4 billion euros on Friday, highlighting the need for capital from a European rescue of Spanish banks that is unlikely to arrive before the end of September."
Matthew Graham : "RTRS- SPAIN'S BANKIA BKIA.MC REPORTS H1 NET LOSS 4.448 BLN EUROS "
Matthew Graham : "just a bit of background likely informing the S&P downgrade"
Matthew Graham : "earlier this week: Aug 28 (Reuters) - Spain's north-eastern region of Catalonia will tap a state facility credit line for just over 5 billion euros ($6.26 billion), which will cover its financing costs and maturing debt this year, a spokeswoman for the region's government said on Tuesday."
Jerry T : "Spanish 10-yr yields just shot up...nearing 6.9% now"
Matthew Graham : "RTRS- S&P DOWNGRADES SPAIN'S CATALONIA REGION TO 'BB/B'; OUTLOOK NEG "
Andy Pada : "A big thank you to MG and MBS Live Crew for getting us through the early August bump in the road"
Rob Clark : "REPRICE: 11:38 AM - Provident Funding Better"