Most of today's damage was done by 10am as bond markets walked in the door in weaker territory and were dealt a hand of surprisingly strong economic data. 10yr Treasuries continued their overnight trend of weakness, despite having bounce back from 1.72 to just under 1.70 shortly before New York trading began, ultimately testing technical boundaries just under 1.75. Fiscal Cliff headlines helped bond markets bounce back into the 11am hour and the post-POMO trade (Fed Twist Buying) was supportive this time around. But the weak 30yr bond auction put an end to whatever positivity was being mustered, deflecting momentum sideways with 10's heading out around 1.73 and Fannie 3.0 MBS 5 ticks weaker on the day at 104-19.
MBS Pricing Snapshot
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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
Holding Ground After Hours, Some Positive Reprices
Although the 104-22 resistance level ended up keeping a lid on most of the day's price action, Fannie 3.0 MBS didn't venture much below 104-19 for the balance of the afternoon and are currently 4 ticks lower on the day at 104-20. Reprices have gone both ways, with the most recent being positive, and while we wouldn't necessarily lean on that as evidence that more could follow, it at least speaks to some sort of volatile equilibrium between bulls and bears heading into the close.
Stocks are spiking mildly off their lows following news that Boehner will forgo that long and lonesome road back to Ohio in order to meet with The President today. S&Ps are still off about 10 points from their 10:20am highs.
10yr Treasuries don't seem to care much and have managed to traipse sideways between their morning highs and afternoon lows, currently up 2.6 bps on the day at 1.7282.
30yr Auction Reinforces Resistance, Stocks Push Back
Both MBS And Treasuries were peeking across the fence of intermediate technical levels set up by yesterday's sell-off. Floor/Ceiling behavior was evident at 104-22 in Fannie 3.0s as well as anything from 1.70 to 1.714 in 10yr yields. Fannie 3.0s had edged up to 104-24 just ahead of the auction and 10's made it all the way to 1.704.
The auction came in weaker than expected with a 2.50 bid-to-cover versus a recent average closer to 2.60 and a stopping yield of 2.917 versus an expected 2.882. Bond markets initially pulled back to weak side of their technical lines in the sand. But pervasive weakness in equities markets combined with the small amount of "relief bid" following the week's supply needs (no more Treasury auctions to bid on - sometimes a marginal benefit even in the absence of strong results) helped bond markets get right back to the doorstep of those pivot points.
They haven't broken yet (in fact MBS just bounced off the 104-22 ceiling and 10's are back up to 1.723) but the fact that we're NOT selling-off any further feels like a decent enough turn of events considering the weak auction results. It's been a bumpy ride so far today, relative to recently narrower ranges leading up to the FOMC, but we should avoid excessive negative reprice risk if Fannie 3.0s continue to trade at 104-16 or above (currently at 104-19, 5 ticks weaker on the day). That said, some lenders may not enjoy the elevated level of volatility, despite the fact that outright prices aren't low enough to justify a reprice in and of themselves.
Bond Markets Continue To Bounce Around After Boehner
Both MBS and Treasuries are well off their weakest levels of the morning thanks to technical and tradeflow-based support that came in during and after the Fed's Twist buying operation from 10:15-11:00am. 10yr yields were technically in an uptrend through 11:00am but broke out of that trend channel right at 11am (though the highest yields were 20 minutes earlier). MBS simply held firm to their 104-16 support level mentioned earlier and have gradually followed Treasuries back into stronger territory.
To some extent the bond market bounce may have amounted to a capitulative risk-off trade following the big bounce lower in equities markets, but we'd hesitate to assume that's the case just yet. At the very least, the technical/tradeflow picture was supportive as well, with the big bounce lower occurring both sharply, with a noticeable increase in volume, and at the edge of an established technical zone around 1.75.
Since 11am, Boehner's comments on the Fiscal Cliff situation have helped equities continue to sell-off, though it looks like they're already trying to bounce. 10yr yields moved moderately lower with stocks and are subsequently moderately in tune with the bounce. 10's had a chance to break back below the mid 1.71's technical level and failed in a very clearly delineated fashion, not once, but twice. That's the line in the sand for broader bond markets at the moment and one that's not likely to be crossed without the help of a mostly awesome 30yr Bond Auction at 1pm.
As for MBS, negative reprice risk definitely ebbed with prices on Fannie 3.0s making it back up to 104-20 during all this volatility. But much like 10's, MBS have also encountered resistance at their own inflection point of 104-22. That'll serve as the MBS-specific line in the sand--to be tested on the chance we see a strong auction or are otherwise able to trade higher in the next hour. For now, it's overhead resistance.
Live Chat Featured Comments
Steve Chizmadia : "REPRICE: 2:58 PM - Pinnacle Better"
Geoff Allison : "REPRICE: 2:42 PM - Platinum Mortgage Better"
Nate Miller : "nice come back mbs!! "
Dustin McAlister : "va irrrl the only thing that matters is the property your refinancing, the history of any other property is a non-factor, 100% sure on that"
Jason York : "typically on an IRRRL, they are just going to look at credit score and LTV, credit doesn't really come into play, other than making sure the score is high enough for your investor and that there haven't been any lates in the past 12 months"
Oliver S. Orlicki : "does anyone know if you can a VA IRRRL for a borrower who had a short sale on an investment property less than 2 years ago. We are refinancing his primary"
Matthew Graham : "RTRS - U.S. SENATE DEMOCRATIC LEADER REID SAYS BOEHNER "CAN'T IGNORE THE AMERICAN PEOPLE FOREVER" ON TAX HIKES "
Matthew Graham : "sit down with some hot cocoa by the fire tonight and have a read Tom: http://www.newyorkfed.org/research/conference/2012/mortgage/primsecsprd_frbny.pdf"
Tom Bartlett : "I am trying to figure if that is close to what they shoot for as a target margin?"
Jason Wilborn : "haven't we seen this sort of thing before? Politicians put on a front and then at the last minute the put together "a package that will help the American people that has broad bi-partisan support" which really means we just ripped you tax payers off again because we had to put this junky legislation together the last minute and everyone voted for it because they had no choice but to pass something""
Tom Bartlett : "I am wondering what the typical margin is on say a 30 yr fxd "A" paper loan?"
Adam Quinones : "the Fed. "
Jason Anker : "if the 2.5% MBS pays 105 we'll be lending at 2.5%. The question is will anyone buy that MBS at that price."
Mike Drews : "i would think that most are locked through the end of December"
Tom Bartlett : "I may be a bit paronoid but I locked everything yesterday that I could."
Scott Rieke : "REPRICE: 11:03 AM - Wells Fargo Worse"