MBS briefly made new all time highs earlier this morning but rapidly backed off as bond markets sold off handily into the 10am hour. Fannie 3.0s made it as low as 103-28, a full 7/8ths of a point off the morning highs. After dancing around the 104 level for the hour of the Fed 30yr Twist buyback, support looks to have held FOR NOW. We emphasize this point because there's no way to know how the rest of the session will unfold and would thus advocate extreme vigilance, especially considering lessons from the past.
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 11:06 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
MBS Hit Day's Lows As Stocks Surge, Treasuries Tank, Sentiment Surges
MBS were already well on their way to the lows of the morning before Consumer Sentiment printed a surprisingly strong 79.2 vs 74.0 consensus. After being in positive territory earlier Fannie 3.0s are now down more than half a point. The situation is quite serious and exactly the sort of thing we cautioned against in the morning alert.
Essentially we have bond markets in full melt-down mode and Stocks in full skyrocket mode. While MBS can naturally and significantly outperform Treasuries at the moment, that outperformance is little consolation when the whole of bond-marketdom is tanking together. 10's are at 1.873 and rising. Fannie 3.0's are down 19 ticks on the day at 104-01. Any lenders that were out with pricing before, say 9:45 are at serious risk of repricing for the worse. More to follow as necessary.
ECON: Consumer Sentiment Stronger Than Expected.
THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT INDEX PRELIMINARY SEPTEMBER 79.2 (CONSENSUS 74.0) VS FINAL AUGUST 74.3
THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIMINARY SEPTEMBER 88.3 (CONSENSUS 86.3) VS FINAL AUGUST 88.7
THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX PRELIMINARY SEPTEMBER 73.4 (CONSENSUS 65.0) VS FINAL AUGUST 65.1
THOMSON REUTERS/U. OF MICH 12-MONTH ECONOMIC OUTLOOK INDEX PRELIMINARY SEPTEMBER 88 VS FINAL AUGUST 73
THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK PRELIMINARY SEPTEMBER 3.5 PCT VS FINAL AUGUST 3.6 PCT
THOMSON REUTERS/U. OF MICH 5-YEAR INFLATION OUTLOOK PRELIMINARY SEPTEMBER 2.8 PCT VS FINAL AUGUST 3.0 PCT
THOMSON REUTERS/U. OF MICH CONSUMER SENTIMENT, CONSUMER EXPECTATIONS, 12-MONTH OUTLOOK ALL HIGHEST SINCE MAY
ECON: Industrial Production Much Weaker Than Expected
- Industrial Production -1.2 vs +0.0 consensus
- Fed chalks up 0.3 of the loss to TS Isaac
- Manufacturing output -0.7 vs +0.4 last month
- Mining -1.8 vs +1.0 last month
- Fed says mining decline due to gulf oil shut-downs re: TS Isaac
Industrial production fell 1.2 percent in August after having risen 0.5 percent in July. Hurricane Isaac restrained output in the Gulf Coast region at the end of August, reducing the rate of change in total industrial production by an estimated 0.3 percentage point. Manufacturing output decreased 0.7 percent in August after having risen 0.4 percent in both June and July. Precautionary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of the hurricane contributed to a drop of 1.8 percent in the output of mines for August. The output of utilities declined 3.6 percent. At 96.8 percent of its 2007 average, total industrial production in August was 2.8 percent above its year-earlier level. Capacity utilization for total industry moved down 1.0 percentage point to 78.2 percent, a rate 2.1 percentage points below its long-run (1972--2011) average.
MBS Near Unchanged Levels Despite Treasuries Getting Crushed
Treasuries haven't been crushed in the overnight session as much as they've been "re-crushed." In other words, 10yr yields were pushed back to to yesterday's highs at 1.83+ in the overnight session as German Bunds sold off as well. Big asset allocation trades are a factor given the ostensible new world orders from the Fed. That means that longer-term, more strategic type accounts are adjusting their portfolios away from Treasuries and into things like stocks and MBS.
MBS opened up in somewhat weaker territory but were quickly scooped up back over yesterday's highs. Fannie 3.0s are at 104-24 at the moment, a new all-time high. The major concern here 10's at 1.80 again is that we embark on some sort of extended sell-off in bond markets. If that happens, sure, MBS would absolutely outperform Treasuries, but they could do so even while moving lower in price.
We don't have any reason to believe that this will be the case, but don't want to assume the rally in MBS continues unabated if not supported by at least some measure of broader bond market strength. For now though, broader bond markets look to be holding their ground at similar levels to yesterday.
With Industrial production just printing -1.2 vs a +0.0 consensus, we're in pretty good shape for the rest of the morning in terms of economic data's impact on trading -- whatever that may actually be (because we think the ongoing reaction to QE3 is the bigger trading motivation). The last report of the morning hits at 9:55am with Consumer Sentiment.
ECON: Core Consumer Prices Lower Than Expected As Gas Hurts Headline
* Headline CPI +0.6 this month vs +0.5 consensus
* Core CPI +0.1 vs +0.2 consensus
* Core CPI + 0.0521 annually vs +0.2 consensus
* Inflation adjusted earnings -0.6 vs -0.3 consensus
The Consumer Price Index for All Urban Consumers (CPI-U) increased
0.6 percent in August on a seasonally adjusted basis, the U.S. Bureau
of Labor Statistics reported today. Over the last 12 months, the all
items index increased 1.7 percent before seasonal adjustment.
The seasonally adjusted increase in the all items index was the
largest since June 2009. About 80 percent of the increase was
accounted for by the gasoline index, which rose 9.0 percent and was
the major factor in the energy index rising sharply in August after
declining in each of the four previous months.
The food index increased 0.2 percent in August, with major grocery
store food group indexes mixed. The index for all items less food and
energy rose 0.1 percent for the second month in a row. The indexes
for shelter, medical care, personal care, new vehicles, and
recreation all rose in August. These increases more than offset
declines in the indexes for used cars and trucks, apparel, household
furnishings and operations, and airline fares.
The 12-month change in the index for all items was 1.7 percent in
August, an increase from the July figure of 1.4 percent. The index
for all items less food and energy rose 1.9 percent for the 12 months
ending August, a slight decline from the 2.1 percent figure in July
and its smallest increase since July 2011.
ECON: Retail Sales Slightly Higher, But Driven By Gasoline
* +0.9 vs +0.7 consensus
* Gas sales +5.5%, largest rise since Nov 2009
* Excluding Gas, Retail Sales +0.3
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for
seasonal variation and holiday and trading-day differences, but not for price changes, were $406.7 billion, an increase of 0.9 percent
(±0.5%) from the previous month and 4.7 percent (±0.7%) above August 2011. Total sales for the June through August 2012 period
were up 4.0 percent (±0.5%) from the same period a year ago. The June to July 2012 percent change was revised from 0.8 percent
(±0.5%) to 0.6 percent (±0.2%).
Retail trade sales were up 0.9 percent (±0.5%) from July 2012 and 4.4 percent (±0.7%) above last year. Auto and other motor vehicle
dealers were up 12.3 percent (±2.5%) from August 2011 and nonstore retailers sales were up 10.6 percent (±3.1%) from last year.
Live Chat Featured Comments
Matt Hodges : "WF is repricing"
Matthew Graham : "sometimes nothing at all. Not necessarily big per se, but if we see a triangle, we have some degree of regularity in two competing trendlines. It's sort of like a battle. The trendline that "doesn't break" is just that much better developed than the one that does break. No hard and fast rules, but just slightly better odds of the winning trend being the stronger one."
John Paunan : "MG, this is probably elementary, but what happens at the end of a triangle is usually a big break up or down, right? Just want to confirm my assumption...thanks as always!"
Matthew Graham : "Fed has already been in buying today"
Ted Rood : "Maybe they're hung over and late to work today after yesterday's big announcement."
Matthew Graham : "typically in the morning hours, and as of yesterday, you'd want to assume that 4/5 transactions are Fed buys."
Ted Rood : "MG, do we know what time of day Fed buying typically takes place? Hopefully hasn't happened yet!"
Matthew Graham : ""But the improved optimism was likely a temporary bounce after the recent presidential candidate conventions, the report cautioned.
"The sooner it is tempered, the less economic damage will be incurred due to failed expectations," survey director Richard Curtin said in a statement.""
Andrew Horowitz : "exactly MH"
Matt Hodges : "what?"
Matthew Graham : "RTRS- THOMSON REUTERS/U. OF MICH CONSUMER SENTIMENT, CONSUMER EXPECTATIONS, 12-MONTH OUTLOOK ALL HIGHEST SINCE MAY "
Matthew Graham : "RTRS - THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX PRELIMINARY SEPTEMBER 73.4 (CONSENSUS 65.0) VS FINAL AUGUST 65.1 "
Ted Rood : "Don't forget the customary Friday PM worsens just prior to lock desk closing for Happy Hour."
Matthew Graham : "RTRS - THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIMINARY SEPTEMBER 88.3 (CONSENSUS 86.3) VS FINAL AUGUST 88.7 "
Matthew Graham : "RTRS - THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT INDEX PRELIMINARY SEPTEMBER 79.2 (CONSENSUS 74.0) VS FINAL AUGUST 74.3 "
Nate Miller : "prob. be just enough for lender to give us rates this morning lookiing like yesterday never happened..."
Victor Burek : "its friday..after a huge rally, probably some profit taking going on"
Oliver S. Orlicki : "looked like we were going to be green today"
Oliver S. Orlicki : "what caused this bounce"
Jerry Turner : "Nah...they're just sad along with Krugman: "Paul Krugman said that the third round of Federal Reserve asset purchases announced yesterday may be too small of a stimulus for the struggling U.S. economy""
David Gaffin : "I guess MBS figured that spreads were a bit too tight?"
Brayden Alexander : "MG and MBS crew.... thank you for holding it together yesterday when some of us were in the dark. The quick response and abilitiy to help us out while also trying to fight of the threat speaks volumes. Thank you again for everything."
Matthew Graham : "RTRS - FED SAYS MINING OUTPUT DROP REFLECTED SHUTDOWNS OF OIL, GAS RIGS IN GULF OF MEXICO DUE TO STORM "
MMNJ : "fortunately lots of consumers look at treasuries vs MBS for rate guidance so maybe I will not get the "drop my 30 yr refi rate to 2%" today...."
Matthew Graham : "RTRS - U.S. AUG CAPACITY USE RATE 78.2 PCT (CONS 79.2 PCT) VS JULY 79.2 PCT (PREV 79.3 PCT) "
Matthew Graham : "RTRS - U.S. AUG MANUFACTURING OUTPUT -0.7 PCT VS JULY +0.4 PCT, CAP USE 77.0 PCT VS JULY 77.7 PCT "
Matthew Graham : "RTRS- FED SAYS HURRICANE ISAAC CUT AUGUST INDUSTRIAL OUTPUT BY 0.3 PCT POINT "
Matthew Graham : "RTRS - U.S. AUG INDUSTRIAL OUTPUT -1.2 PCT (CONSENSUS 0.0 PCT) VS JULY +0.5 PCT (PREV +0.6 PCT); AUGUST DROP BIGGEST SINCE MARCH 2009 "
Jeff Anderson : "Big misses on industrial production. I guess someone was looking at that."
Jeff Anderson : "If we stayed at the openining levels today, Monday was still going to be awesome. :)"
Josh Stika : "if this keeps up Monday is going to be AWESOME"
Oliver S. Orlicki : "mbs climbing back "
MMNJ : ""and I never would have locked my $300K refi at 11AM yesterday, had it not been for those meddling kids"......"