The tone of the overnight session was serene and slightly positive for bond
markets at first, but quickly became dicey as the pre-market domestic crowd
pushed yields back toward Tuesday's highs before the open. Shortly after 8am,
both Treasuries and MBS had broken even with the previous session's closing
levels and made some nice gains into the 10am hour, a process that clearly
seemed to be helped a long by stock market selling. Once stocks bottomed out
around 10:30am, bond markets gave up their rally, and took additional steps to
sell-off following the Fed's "Twist" buying at 11:00. MBS are trying to hold
on to an eighth of a point of gains heading into the close, and have been doing
their best to stay sideways above support levels while Treasuries continue to
weaken in the afternoon.
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 4:04 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
Potentially A Bit Dicey Heading Into The Close
More of a heads-up than anything... Prevailing MBS prices during most lenders' rate-sheet creation times: 104-14 to 104-16
Current Prices: 104-10 to 104-12
This probably isn't cause for too much concern for most lenders, but a select few have been known to consider reprices in such situations. Things are slow, drifty, and sideways at the moment, but also a bit on the weak side of the day's range since 9AM.
Despite a good bit of disconnection earlier, an equities sell-off into the close seems to be helping bond markets' resolve to hold their most recent support levels (1.8136 in 10yr yields or 104-10 in MBS).
Initially Weaker After Auction, But Not Because Of it
MBS and Treasuries are weaker after the 7yr Note auction, but NOT because of it. The auction itself wasn't traded nearly as heavily as the 10 minutes leading up to it, or in the 10 minutes following the results. If the auction had caused the most recent pop, we would have seen the flows hit right at the 1:01:30pm release of the results. Not the case
Causality matters less than movement, however, as we're simply noting the technical continuation of the selling trend in place since this morning's Fed "Twist" buying. Fannie 3.0s are still up 6 ticks on the day at 104-13 but dipped briefly to 104-11 just now, the lowest levels since rate sheet time. 10yr yields rose to their highest levels since the 9am hour, hitting 1.805 before falling back just under 1.80.
These aren't major movements, but it's important to note the regularity of the persistent trend weaker since 10:30am. In terms of outright price levels, we're not into territory that justify's negative reprice risk, but for some lenders, the trend is sufficient cause for concern even if it hasn't quite delivered 4+ ticks of losses.
Stay on guard against ongoing weakness into the afternoon. There's an outside chance that a lender or two would reprice negatively here, but those likelihoods increase if we head below 104-12 in Fannie 3.0s.
Post POMO Volatility Suggests Good Defensive Targets
(quick note: "Post-POMO" has more of a ring to it than "the time frame immediately following the Fed's almost daily scheduled permanent open market operations purchasing a predetermined dollar and maturity range of US Treasuries under Operation Twist.")
As we've noted on numerous occasions since the inception of Twist, the scheduled buying that typically concludes at 11am often times coincides with the best levels of the day for bond markets, all other things being equal. To oversimplify the dynamic: if the Fed's coming in as a guaranteed buyer of a set amount of dealer's inventories, why not push prices higher ahead of the takedown?
This certainly isn't a hard and fast rule, but more often than not, there's at least a bit of volatility at 11:02am on POMO days, usually in a negative direction for bond prices. That's currently the case, but more so for Treasuries than MBS. Still, a bit of caution is in order, as we look to defend our nice little bounce back today.
Fannie 3.0s were as high as 104-17 at 10:30am but quickly hit 104-11 just after 11am. The pressure is somewhat off at this point, as prices have returned to 104-15, right in line with yesterday morning's highs, but the defensive vibes are more a product of Treasury trading.
Like MBS, Treasuries hit their best levels of the morning at 10:30am and bounced back just after 11am. This amounted to a move from 1.775 to 1.795. There was a good supportive bounce there, but the risk is that 10:30am marked the best levels of the day with a slow leak into weaker territory from here.
Approaching that eventuality is pretty simple... Stay defensive against breaks of those recent weak spots (104-11 in Fannie 3.0s and 1.795 in 10yr yields). With those levels currently at 104-15 and 1.7857, we look to be on cruise control, but wouldn't take for granted that the rest of the day will be effortlessly bullish. Next scheduled event: 7yr Note Auction at 1pm. Minor market moving potential.
Live Chat Featured Comments
Christopher Stevens : "REPRICE: 2:27 PM - Chase Better"
Matthew Graham : "For those that didn't see it, it was a huge departure from the past 2 days of more collegial tones, with the Speaker saying that Obama's plan fails to "pass the test" of the balanced approach. Republicans will pass the tax bill in the house and then it's up to Obama as to whether or not he will call on the Senate to play ball or be responsible for the large tax increase. "
Matthew Graham : "wow... we're right back to utterly ridiculous Fiscal Cliff comments"
Matthew Graham : "RTRS- US HOUSE SPEAKER BOEHNER TO HOLD 2:15 PM ET PRESS CONFERENCE-AIDE "
Matthew Graham : "markets have been a bit slow on the uptake here, but this looks to be hitting stocks finally. wire was 1:11pm and the statement may have been several minutes earlier. Didn't hear it personally"
Matthew Graham : "RTRS- ANTI-TAX ACTIVIST GROVER NORQUIST SAYS BOEHNER'S 'PLAN B' DOESN'T VIOLATE LAWMAKERS' PLEDGE NOT TO RAISE TAXES "
Matthew Graham : "RTRS- U.S. 7-YEAR NOTES BID-TO-COVER RATIO 2.72, NON-COMP BIDS $28.29 MLN "
Matthew Graham : "RTRS - U.S. SELLS $29 BLN 7-YEAR NOTES AT HIGH YIELD 1.233 PCT, AWARDS 92.81 PCT OF BIDS AT HIGH"
Tom Schwab : "REPRICE: 12:53 PM - AMC Better"
Matthew Graham : "RTRS- OBAMA SAYS THERE IS NO DOUBT SPEAKER BOEHNER HAS CHALLENGES IN HIS CAUCUS ON REACHING FISCAL CLIFF DEAL "
Jason Zimmer : "that is correct"
MMNJ : "correct. On an FHA streamline both borrowers need to stay on as you are basing the streamline on the factors of the previous transaction. Only way one can be removed would be to do a credit qualifying rate / term refi. That is my understanding"
Clayton Sandy : "Think someone hit the wrong button on Provident. "