MBS Live: MBS Afternoon Market Summary
Since yesterday afternoon, Treasuries have rallied more effectively than MBS.  It's been a good, old-fashioned "risk-off" sort of move--the kind that MBS normally lags.  Yesterday afternoon marked the narrowest spreads between MBS and Treasuries since the initial QEuphoria collapsed spreads to all time lows (in other words, MBS yields got as close as they ever have been to Treasury benchmarks such as 10yr Notes).  Treasuries have outperformed since then and while that trend continued today, it was mitigated to some extent, by a light supply environment in lower coupon MBS.  This is something that could change rapidly as soon as lenders start selling MBS to cover locks that are coming in presently.  On a somewhat disconcerting note, such a ramp up in supply would be untimely if it coincided with a change in the technical landscape.  Case in point: our longer term trendline was hit today in Treasuries and MBS made their most convincing double top since the post-QE3 rally began at just over 106-00 in Fannie 3.0s.  All this on the longest-running streak of consecutive winning days for bond markets since 2008.  That raises some concern as to a short term reversal.
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
107-18 : +0-04
FNMA 4.0
107-29 : +0-01
FNMA 4.5
108-15 : +0-02
FNMA 5.0
109-10 : -0-03
GNMA 3.5
109-27 : +0-03
GNMA 4.0
110-15 : +0-01
GNMA 4.5
110-02 : +0-01
GNMA 5.0
110-17 : -0-02
FHLMC 3.5
107-16 : +0-03
FHLMC 4.0
107-21 : +0-01
FHLMC 4.5
107-26 : +0-02
FHLMC 5.0
108-20 : -0-03
Pricing as of 4:06 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.

2:02PM  :  ALERT ISSUED: Bouncing Back From Previous Weakness After Strong 5yr Auction
First thing's first, MBS have bounced back AFTER the strong 5yr auction, but not necessarily BECAUSE of it. That's an important point to make these days as we're tasked with the ongoing process of disconnecting our previous worldviews regarding the level of correlation between shorter-term Treasury auctions and MBS trading levels.

In other words, the strength of any Treasury auction of 2-3yrs has had little impact on MBS prices following the auction. We credit this phenomenon largely to the Fed's low interest rate verbiage essentially spelling out the length of time that interest rates will be "exceptionally low." Therefore, policy verbiage of "through late 2014" was as good as saying "2yr Treasuries don't need to move much off the floor."

With the recent move to "mid 2015" in the verbiage, combined with the general outlook for the time period of "low rates," we'd pondered this morning whether or not we'd see 5yr Auctions fall victim to the same lack of importance.

Now that the auction has passed, and triumphantly so, we see that this is indeed the case. There was VERY LITTLE reaction to the auction itself with the yield highs of the day already well established around noon.

Perhaps the weakness that had been creeping in before the auction would have continued if the auction was awful, but whatever the case, the lion's share of volume is now being seen on reactions to tradeflows and technicals, the "stuff" that moves markets when there's no clear case for cause and effect derived from news and events.

Keep in mind that this week is "month-end" and "quarter-end." Accounts will be adjusting portfolio positions for these important marking periods and as of now, they're obviously buying. 10yr yields are down over 5 bps on the day at 1.618 and Fannie 3.0 MBS are up 9 ticks at 106-01. We've already seen a few positive reprices and more will follow if we maintain current levels.
12:30PM  :  ALERT ISSUED: Well Off Previous Highs Ahead Of Auction. Some Reprice Risk
Although we're only now getting to levels that are far enough away from "rate sheet generation time" to connote negative reprice risk, the trend since 11am has been toward selling for MBS. Fannie 3.0s topped out at 106-03 and ground sideways between 9:30 and 11:00am, holding a floor of 106-00 quite well.

After that support broke down at 11am, prices have slid a few ticks to 105-29, basically in line with a pivot point from this morning's highs. Negative reprices are only a small possibility among the jumpiest lenders, but if we fall further, risks would increase. 105-26 is the key defensive line in the sand if we break below 105-29.
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.

Matthew Graham  :  "IB's been slow to capitulate to the rally, but I did notice they dipped their toes into the sub 3.25% water today for the first time I can see."
Bryce Schetselaar  :  "Yeah, I have. My rep keeps trying to get me to send him business but its tough with the higher rates"
Brandon Blue  :  "Anyone else notice that Interbank inflated their rates because they are too busy? It's not normal that Plaza and ICON outprices them on a 30yr conforming!"
Jason West  :  "Caliber Funding is a very solid lender."
Lea Shaw  :  "Anyone know Caliber Mortgage"
Matthew Graham  :  "RTRS - EVANS - DON'T THINK UNEMPLOYMENT RATE HAS TO GO DOWN TO 7 PCT BEFORE FED STOPS BUYING ASSETS "
Matthew Graham  :  "RTRS - EVANS-SUBSTANTIAL IMPROVEMENT MEANS INCREASE IN PAYROLLS OF AT LEAST 200,000 FOR SEVERAL QUARTERS, AND JOBLESS RATE WELL BELOW 8 PCT "
Ken Crute  :  "6 vic "
Victor Burek  :  "to do a VA IRRL, does the vet have to have had the current loan for a certain amount of time, like 6 or 12 months?"
Rob Clark  :  "REPRICE: 1:54 PM - Provident Funding Better"
Bryce Schetselaar  :  "REPRICE: 1:53 PM - Sun West Mortgage Better"
Chris Kopec  :  "One of the most frustrating aspects of originating is matching lenders with what Fannie and Freddie indicate they will do. The max # of financed properties is a major cause of heartburn. And unlimited LTV on the Freddie (HASP) product is another."
Edie Clark  :  "Matt, David, and Brent...the info that Matt found is listed in Bulletin 2012-19 effective September 14th. Now just need to find a Lender that will do it!"
Chip Harris  :  "at least reversing that trend... "
Matthew Graham  :  "I don't know if it will ultimately look like an A+ market reaction, but the auction itself was an A+"
Matthew Graham  :  "A+"
Matthew Graham  :  "RTRS- US TREASURY - PRIMARY DEALERS TAKE $16.52 BLN OF 5-YEAR NOTES SALE, INDIRECT $14.71 BLN "
Matthew Graham  :  "RTRS - U.S. 5-YEAR NOTES BID-TO-COVER RATIO 3.06, NON-COMP BIDS $20.41 MLN "
Matthew Graham  :  "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 0.647 PCT, AWARDS 39.89 PCT OF BIDS AT HIGH "
David Z.  :  "There may have been an update to that on the Freddie announcement. Not sure if it Changed yet or in November "
Brent Borcherding  :  "I'm quite confident Open Access will limit the # of financed properties. If not, I don't know of a lender who won't."
Matthew Graham  :  "this help narrow it down Edie? Mortgages secured by investment properties and second homes are not subject to the requirements related to the number of financed properties in Guide Sections 22.22.1 and 22.22."
Edie Clark  :  "LP Open Access anyone...more than 4 properties allowed? Sorry...I have to get back to someone ASAP and I do very few LP's. Couldn't find it in Allregs."
Matthew Graham  :  "5 year auction coming up in just over 10 minutes. Recent average bid-to-cover: 2.81. Five out of the last six have come in at higher-than-expected yields, the previous six (from 9/28/11 to 2/22/12) all stopped through at lower-than-expected yields. Indirect bidding has averaged 40%. "
Matthew Graham  :  "RTRS- SPAIN'S GOV'T TO FREEZE CIVIL SERVANT WAGES IN 2013 WHEN PRESENTS BUDGET ON THURSDAY - TRADE UNION SOURCE "

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