MBS Live: MBS Afternoon Market Summary
Bond markets simply languished sideways to slightly weaker today after walking in the door already in the hole.  A majority of the movement in broader bond markets occurred in the wee hours after the 4am announcement of the German court decision on the ESM.  Market participants didn't expect the decision to, in some way, disallow the ratification of the ESM (Europe's permanent bailout fund, the "European Stability Mechanism), but were curious to see what conditions would be attached to Germany's participation.  Every other Euro zone country has signed off.  As it turns out, the conditions were on the lighter side of expectations.  Either that or risk markets simply experienced a relief bid at the relatively uneventful completion of this big-ticket event.  After the selling overnight, bond markets didn't move much throughout the day, but what little movement we got was generally into weaker territory for Treasuries and sideways for MBS.  Tomorrow is the grand finale of this stretch of big-ticket events that began with last week's ECB Announcement and NFP report.  The FOMC Announcement is released at 12:30pm Eastern Time followed by forecasts at 2:00pm and the Bernanke Press Conference at 2:15pm. 
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
105-19 : -0-03
FNMA 4.0
106-26 : -0-02
FNMA 4.5
107-26 : -0-02
FNMA 5.0
108-29 : -0-04
GNMA 3.5
107-29 : -0-04
GNMA 4.0
109-14 : -0-02
GNMA 4.5
109-15 : -0-03
GNMA 5.0
110-17 : +0-03
FHLMC 3.5
105-13 : -0-03
FHLMC 4.0
106-19 : -0-02
FHLMC 4.5
107-07 : -0-02
FHLMC 5.0
108-06 : -0-02
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 this afternoon.

1:21PM  :  ALERT ISSUED: Bond Markets Slightly Weaker After 10yr Treasury Auction
While the short end of the yield curve continues to be pinned down, the longer end continues flapping in the wind (generally in an unfriendly direction). The 10yr Auction has merely added fuel to this fire--not much, but enough to nudge yields to their highest levels of the day and push MBS in line with their lows.

In and of itself, the auction could have been worse. The 2.85 bid-to-cover ratio was in line with broader averages, but on the weak side for a "reopening." The auction's stopping yield was also weaker than markets were expecting. Rather than going by any sort of forecast, the expectations for the auction's stopping yield are clearly broadcast by the "when-issued" market. This auction's yield was 0.7 bps higher than the 1pm when-issued yield, one of only 3 out of the last 10 auctions to stop at a higher yield.

There was an obligatory push in volume, but it didn't rival the stir created by the German court news overnight. That was the bigger push toward weakness with this lousy auction simply not getting in the way. We're essentially leading-off in as defensive a position as possible ahead of tomorrow's FOMC festivities.

That said, it's not runaway, "panicky," weakness... More like "just as much weakness as markets can fit in without it seeming overdone." MBS are doing a good job of holding their ground into Treasury selling, as expected. The negative reprice risk outlook is a bit uncertain, but certainly, we'd note that actual price levels are no worse than rate-sheet time. Still, we can't help but feel a bit guarded when prices move lower following a 10yr Auction.

Bottom line, vigilance is increased, but at Fannie 3.0s continue to hold their ground at 103-06 or better, we'd probably not be hitting the panic lock button just yet. The other side of this coin is that we're not sure why we'd wait to lock unless we were planning on floating into FOMC tomorrow.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Andy Pada  :  "I thought the low rate language was already "sort of" dismissed since Chairman Bernanke's tenure ends in 2015 (or sooner if Romney gets elected)"
Victor Burek  :  "we also have the low rates language..what impact might it have"
Christopher Stevens  :  "I would think the 10YR as well as MBS market has priced in some expectation for QE3. The question is will the action the Fed announces be more or less than the market anticipated. If it is less watch out."
Victor Burek  :  "seems buying treasuries woudl be best since mbs woudl follow and our govt needs to borrow a lot more money"
Ted Rood  :  "Not to mention lenders pricing off pipeline control and "improved" profit margins rather than on gross prices of MBS......."
Andy Pada  :  "It seems that every time QE is announced there is an initial drop in yield (if I read the article correctly). So if there is no announcement, would this lead to sell off in equities and at the very least, not hurt interest rates? Seems we may be in a pretty good position. Any thoughts?"
Victor Burek  :  "but what would be best for our overall economy..buy mbs or buy treasuries?"
Victor Burek  :  "gonna be interesting to see what happens tomorrow..but consumers should play safe here"
Christopher Stevens  :  "AP here is a good article regarding QE1/QE2 and rates http://www.frbsf.org/publications/economics/letter/2012/el2012-16.html"
Andy Pada  :  "I recall that actual day of QE2 implementation and subsequent days, rates got higher. or was that QE1"
Andy Pada  :  "day of and the next couple of days"
Andy Pada  :  "Can someone validate: rates improved when the Fed announced QE2?"
Scott Valins  :  "you have to do appraisal on vacated property"
Scott Valins  :  "BK is correct just closed one"
Bromi Krock  :  "if they have 30% equity or more in the property you should be able to use the rental income. You will need a signed lease agreement as well as first month/deposit in hand before close."
Brent Borcherding  :  "Any scenario where someone with NO landlord history can get a lease on the property they are vacating and use a portion of income for qualifying for new primary purchase? I believe the answer is no...but am getting conflicting info."
Andy Pada  :  "So we beat on, boats against the current, borne back ceaselessly into the past."
Matthew Graham  :  "in the day ahead http://www.mortgagenewsdaily.com/mortgage_rates/blog/274253.aspx"
Matthew Graham  :  ""Then the 10yr auction--normally a very big deal--arrives at 1pm. This could still be a very big deal, but if we had to pick one 10yr auction this year to be overshadowed by the juxtaposed market events, this would be it. As such, it will take a fairly big miss in terms of the auction's stopping yield vs the 1pm "when-issued" yield in order to register a significant response.""
Andrew Horowitz  :  "yup"
Jeff Anderson  :  "Honey crisp much better. Bond traders taking a wait and see for tomorrow stance?"
Andrew Horowitz  :  "c- c+ honey crisp to Macintosh no real difference"
Victor Burek  :  "santelli gave it a c+"
Matthew Graham  :  "C- give or take"
Matthew Graham  :  "so a .7 bps tail on weaker than average cover"
Matthew Graham  :  "WI was at 1.757"
Matthew Graham  :  "RTRS- U.S. 9-YR 11-MO NOTES BID-TO-COVER RATIO 2.85, NON-COMP BIDS $15.04 MLN "
Matthew Graham  :  "RTRS- U.S. SELLS $21 BLN 9-YR 11-MO NOTES AT HIGH YIELD 1.764 PCT, AWARDS 4.46 PCT OF BIDS AT HIGH "

Read what our user's have to say about MBS Live on LinkedIn.
» Start a two week free trial of MBS Live.