MBS RECAP: Post-Election Bounce Mostly Sustained. Some Late-Day Weakness
The market has a tendency to make people look bad when they try to oversimplify or over-analyze the relationships between underlying events and potentially corresponding market movements. That wisdom was very much in mind when we cautiously dipped our toes in the water of chalking up last week's price action to "election-forecasting" after running out of viable ways to explain (or even think about) what was going on. Regardless of how one feels about "another four years," today has been soothing in that it confirmed the election's significance, explained the weird moves of the past three sessions, and of course ushered MBS to their best levels in several weeks. A bit of late day weakness crept in following the Treasury close at 3pm, but even then, Fannie 3.0s spent the whole day trading at least 20 ticks better than yesterday, and MOST lender rate sheets reflected that.
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 4:03 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
MBS Back In Line With Lows In Late Day Illiquidity
We've seen this scenario play out many times before and while it frequently amounts to nothing more than a head-fake, it's worth noting that MBS are back to their lows of the day. For Fannie 3.0s, this is still 21 ticks higher than yesterday's close, but is also roughly a quarter of a point off the previous highs of the day.
On the 2 day chart, given the big swing from yesterday to today, this won't look like much and indeed, it's not the basis for any sort of big-picture panic. But it IS the kind of nagging end-of-day weakness that CAN cause a lender or two to reprice for the worse. Bigger risks develop if we slide a few more ticks and if markets beyond MBS seem to be participating in the move. On the edge for now, but stay frosty.
Auction-Related Volatility Fades, Leaving MBS, TSY's Largely Unchanged
In and of itself, today's 10yr Treasury Auction was quite a bit weaker-than-expected, with yields coming in almost 2 bps higher than expectations and the bid-to-cover at historically low levels. But when you consider that 10yr yields are over 10bps improved from yesterday's close and that they rallied to their best levels of the day BEFORE the auction, a bit of weakness in the auction results is completely palatable, and markets are bearing that out presently.
In fact, had the auction happened half an hour earlier, the metrics used to measure its strength could paint a completely different picture. Reason being, yields are currently UNDER the levels seen from 10:30am - 12:30pm., and with a brief exception during the lead up to the auction, essentially grinding around the lows of the day (also the lows of the past 3 weeks).
For their part, MBS are nonplussed, with MBS briefly revisiting pre-auction lows and then continuing to trade sideways in the day's existing range. Volatility has been generally decreasing since the auction and Fannie 3.0s are hovering around 105-10, which is 25 ticks up on the day.
We've seen one positive reprice on the stability and wouldn't rule out a few more. That said, widespread positive reprices aren't exceedingly likely unless we see more concerted gains.
10yr Auction Preview
Last time we had a 10-yr refunding auction on 8/8, it was fairly ugly but probably had more to do with the timing of the auction than the auction itself. Other than that, the historical tendency is for 10yr refunding auctions to stop through at lower than expected yields.
Keep in mind that bid-to-cover is much lower on average for refunding auctions vs reopenings with the last 4 refundings averaging 2.77 vs an average of 3.24 for reopenings over the same time frame.
Live Chat Featured Comments
Matthew Graham : "But expectations were sort of a moving target and the two day shift in yields has been fairly intense. I think being within 2bps on the result is acceptable, and 2.59 isn't a horrific BTC. Weakness now? yes, but not the kind that is likely to spiral out of control"
Matthew Graham : "C-"
Matthew Graham : "RTRS- U.S. 10-YEAR NOTES BID-TO-COVER RATIO 2.59, NON-COMP BIDS $26.80 MLN "
Matthew Graham : "RTRS- U.S. SELLS $24 BLN 10-YEAR NOTES AT HIGH YIELD 1.675 PCT, AWARDS 41.69 PCT OF BIDS AT HIGH "
Nate Miller : "REPRICE: 12:56 PM - Provident Funding Better"
Adam Shelton : "Scott...We face this issue quite often. Typically the insurer will simply quote the existing premium as the renewal amount if the actual renewal premium has not been determined."
Edgar : "SV - happens to me every couple of months. So frustrating as borrower's usually get a bit upset about it. However unless they give you a bill for the new one.....borrower has to get new insurance or extend the closing. Generally the agent for the borrower can get something done though."
Matt Hodges : "if they want to keep the business, they will renew it"
Matt Hodges : "yes, the agent will"
Victor Burek : "have client call"
Scott Valins : "won't give me a premium amount for new period"
Scott Valins : "anyone run into this issue? insurance period ends 12/30/12 - renewal premium not out til end of month. closing before then and first payment is 1/1/13 so u/w needs to see a new premium amount. Seems like my only option is for client to switch insurance providers"
Matthew Graham : "Greece was flaring up before the election. Just able to pay more attention now."
Joe Daquino : "Funny how Europe comes back into play the day after our elections."
Victor Burek : "getting ugly there..masses dont want the cuts"
Jeff Anderson : "Anyone watching the rioting in Greece on CNBC. Holy Molitoff Cocktails. Someone is going to get killed. For real. Wow."
Matthew Graham : "Biggest S&P losses in over a year."
Jeff Anderson : "Wow. Look out below for equities."
Victor Burek : "they improved over .50 from yesterday's opening sheets"
Chris Kopec : "Plaza's pricing is all I care about this morning."