The dreaded triple "U" score for bond markets today... The data was underwhelming and the trading on the session was uneventful as MBS cut an extraordinarily narrow range for an FOMC day. With the Fed announcement behind us, there's an even greater case to be made for a bond market that is generally feeling uninspired. Is it NFP that we're waiting for next week? Is it Europe? Is it the election? Is it month-end? How about a combo platter of all of the above? We don't know and we're not entirely sure markets know either, or perhaps Treasuries and mortgages are sort of biding their time with popcorn and lawn chairs watching the parade of earnings reports and gyrations in equities. Whatever the case, if we're going to see some sort of early indication that the sideways grind may be breaking, it's not today.
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 4:08 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
Almost Imperceptable Reaction To FOMC Leaves MBS Broadly Sideways
You'd be hard-pressed to find a LESS interesting reaction to an FOMC Announcement than what we've seen today. If you'd told us right at 2:14pm that the 104-16 to 104-19 range that had governed most of the day in Fannie 3.0s would hold up through the end of the session, we'd have stopped just short of laughing, yet HERE WE ARE!
Fannie 3.0s haven't fallen below 104-16 or broken above 105-19 since the announcement and currently trade at 104-18. Treasuries remain in the thick of their range on the day though favor slightly lower yields at the moment, down to 1.77 from 1.79+ earlier this morning. Stocks have slumped a bit as well, but haven't broken lower than mid-day lows. Everything's very contained...eerily even!
Without putting too fine a point on it, the Fed changed nothing with the exception of referring to household spending as slightly stronger and inflation having picked up a bit. There were no adjustments to any of the policy-related verbiage and the ongoing firm commitments to keep policy intact were unchanged.
As for mortgage rates, the reprice outlook, inasmuch as it's spurred by MBS fluctuations, looks neutral for now. We'll watch for any breaks of 104-16 or 104-19 to see if there's follow through.
Stability Prevails Following Less-Than-Stellar 5-Year Auction
Markets continue to show their ever-waning level of interest in the shorter duration Treasury auctions as today's lackluster 5yr issuance has failed to spook any sort of sell-off. In fact, if anything, we're seeing some slow and steady determination on the part of MBS and longer-dated Treasuries to hold supportive levels and remain at least sideways heading into the FOMC Announcement.
As for the auction itself, the stopping yield was reasonably close to expectations, but slightly higher. Demand was weaker-than-average with a Bid-To-Cover of 2.73.
The first reaction amounted to a brief hiccup to the weak side for both MBS and Treasuries, but at this point, it's indistinguishable from the rest of today's price action and bond markets have actually strengthened a bit in the first 15 minutes following the auction.
For MBS, this eases previously growing risks of negative reprices and for bond markets in general, serves to keep us more sideways and range-bound heading into FOMC at 2:15pm. It's not out of the realm of possibility for MBS to break higher before then, but it would have to be a convincing break to prompt positive reprices from more than 1 or 2 lenders.
MBS Melting As Bond Markets Weaken. Negative reprice Risk Already
Depending on the investor and the timing of initial rate sheets, negative reprice risk is already on the radar as MBS move to new lows on the day.
For Fannie 3.0s that's 7 ticks lower than yesterday's 5pm levels at 104-15, but only 3-4 ticks lower than the time frame that most lenders release rate sheets.
This doesn't seem to be a runaway sell-off at the moment, so we might wait it if the lender we were floating with had a historical tendency to not be on the bleeding edge of the reprice scene. But we'll let you know if that changes. As for now, one or two lenders are already at risk, but not "most."
Live Chat Featured Comments
Paul Carlin : "The tens are doing well, come MBS, you can do it!"
Tom Schwab : "how about green within 20 minutes"
Matthew Graham : "RTRS - FED VOTE IN FAVOR OF POLICY WAS 11-1; LACKER DISSENTED, OPPOSED ADDITIONAL ASSET PURCHASES, DESCRIPTION OF TIME PERIOD "
Matthew Graham : "RTRS- FED SAYS GROWTH IN BUSINESS INVESTMENT HAS SLOWED; HOUSING SECTOR HAS SHOWN FURTHER SIGNS OF IMPROVEMENT "
Matthew Graham : "RTRS - FED SAYS WILL CONTINUE OPERATION TWIST UNTIL END 2012, AS PREVIOUSLY ANNOUNCED"
Matthew Graham : "RTRS- FED SAYS EXPECTS HIGHLY ACCOMMODATIVE POLICY WILL REMAIN APPROPRIATE FOR CONSIDERABLE TIME AFTER RECOVERY STRENGTHENS "
Christopher Stevens : "love it!"
Matthew Graham : "RTRS - FED SAYS EXPECT TO KEEP FEDERAL FUNDS RATE "EXCEPTIONALLY LOW" AT LEAST UNTIL MID-2015 "
Matthew Graham : "RTRS- FED SAYS WILL CONTINUE PURCHASES OF MBS AT PACE OF $40 BLN A MONTH; WILL CONTINUE PURCHASES OF MBS UNTIL LABOR MARKET IMPROVES SUBSTANTIALLY "
Matthew Graham : "as with most big potential market movers JD, the key word is "potential""
Justin Dudek : "when the Fed speaks is there any correlation with how MBS does for the day?"
Matthew Graham : "C+"
Matthew Graham : "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.73, NON-COMP BIDS $36.03 MLN "
Matthew Graham : "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 0.774 PCT, AWARDS 28.40 PCT OF BIDS AT HIGH "
Matthew Graham : "5yr Auction coming up. Recent average bid-to-cover at 2.83, but that's dragged down by June and July's ugly auctions. Factoring those two out, 2012 has been closer to mid/upper 2.9s. 4 out the the last 5 auctions were higher-than-expected yields thought he most recent one on 9/26 was lower than expected and with a 3.06 BTC"