Today's analysis on MBS Live was fraught with references to a metaphorical swimming pool on a cruise ship. The ship represents the longer term, bigger picture trends in bond markets. Compared to a pool, the ship is much wider from one end to the other (bigger range between highs and lows), and it turns in the water much more slowly than a swimmer in the pool (longer term trends rarely change, if you look back far enough, whereas short term trends change frequently). If you have yet to glean this from recent analysis, we're a bit bearish on the long term at the moment. It looks like bond markets have bounced off the all-time closing low yields in mid 2012 and have been trending steadily higher since then (albeit at a slow pace and in a wide range -- think cruise ship). In that sense, the ship is headed in a bad direction (assuming higher rates = bad... your opinion may vary).
This morning, even the swimmer was headed toward the bad end of the pool, but he wasn't jumping off the ship, or even close to it. He turned back and swam toward the middle of the pool--the metaphorical "unchanged" territory if you will--and looked to be calling it a day until just before 1pm. At that point, he dashed to the fun end of the pool and stayed there for the rest of the day, perhaps even getting out and catching some sun. In other words, bond markets bounced back fairly big, but not so much so that any of the longer term trends are at risk of being violated or even tested. We're still closing out the week without having broken below 1.865 in 10yr yields. The cruise ship continues heading into stormier waters, though we had a great swim this 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 4:06 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
Treasury Rally Continues. MBS Catching Some Benefit
The refreshing afternoon swim continues for bond markets, which have been moving one direction in the pool on the deck of cruise ship heading in another direction.
Treasuries have been the star of the show this afternoon as moderate slide lower in yields turned into a mini-snowball of short covering bringing 10's quickly from 1.90+ to 1.87. There was a moderate amount of volume behind the move, but nothing compared to this morning. Still, it wasn't the kind of late Friday move we sometimes see where low volumes are exacerbating a move in one direction or another.
Whatever the case, it was enough to catch the attention of accounts who were betting on higher interest rates, forcing them to cover their short positions, which temporarily added to the positivity. Things seem to have leveled off for now at least and 1.868 was as low as 10yr yields made it before heading back up to 1.877.
There's been a bit of a sideways grind between those highs and lows, but without any meaningful drive to or below the mid 1.86 technical levels, we're just looking at the best possible short term gains within the longer term "ominous" trend (which is the breaking and revisiting of the 1.865 inflection point only to bounce higher).
If Bernanke or other events prove to be super helpful on Monday, this technical battle still might not be over, but even then, there's little that bond markets can do in the short term to disprove the longer term, very slightly upwardly sloped trend in rates beginning in the summer of 2012.
Enough of that gloom for now... Just keep it in mind when considering longer term strategies. The more timely news is that lenders are indeed repricing positively. Fannie 3.0's continue grinding sideways around 104-06 (February coupons) and the longer those levels are maintained, the more lenders may come into the pool for a positively revised rate sheet. That said, the late-day rally looks like it's already run its course. We'll let you know if it makes another appreciable move in either direction, especially if there's a pricing implication.
MBS Turn Green As Bond Market Hold Ground
Fannie 3.0s just hit their highs of the day, up 2 ticks at 104-06. Depending on when lenders printed initial sheets, this could be enough for some to consider positive reprices, but we're still in the early moment of the rally.
The move to the upside follows the resolution of competing trends in broader bond markets that's seen 10yr yields move back below 1.90. German Bunds wrapped up trading at Noon EST and US 10's broke from their indecisive range trade shortly thereafter.
All of this movement is occurring in a wider range, with much bigger participation near the highs and lows. So we can't draw any big picture conclusions from the current amount of green on the screens (the only conclusion today was that 10's bounced supportively at 1.928 and that Europe suddenly "matters" again). But even if it's only a swim in the pool on a cruise ship heading the wrong direction, the water feels good today.
Overnight low yields in 10's are 1.88. If we make it below there, we'll talk again. For now, moderate positive reprice risk and no change to bigger-picture defensiveness heading into the weekend.
Live Chat Featured Comments
Eric Si : "REPRICE: 3:10 PM - Suntrust Better"
john kizer : "REPRICE: 3:02 PM - Quicken Loans Wholesale Better"
MC : "REPRICE: 2:51 PM - Flagstar Better"
Andrew Stewart : "Chip-try NationStar or Caliber"
Chip Harris : "Tried them, but they require an appraisal instead of using LP value :-("
Lorne Levy : "Chip, I just did a Freddie HARP with an MI transfer with Stearns. They only transfer MI from a couple of companies so you will need to check."
Ira Selwin : "REPRICE: 2:39 PM - Chase Better"
Steve Chizmadia : "REPRICE: 2:36 PM - Pinnacle Better"
Chip Harris : "Who are you guys using for Freddie relief? I use 5/3 with their unbelievable turn times, but need an MI transfer that they won;t do now."
Matthew Graham : "RTRS- U.S. BUDGET DEFICIT $260 MLN IN DECEMBER, NARROWEST DECEMBER DEFICIT SINCE DEC 2007 SURPLUS (CONSENSUS $22.50 BLN) VS. $172.11 BLN IN NOV "
Bill Laffey : "REPRICE: 1:56 PM - Provident Funding Better"
Paul Mignone : "REPRICE: 1:50 PM - Franklin American Better"
Gus Floropoulos : "up +3/32 on the day, but up roughly +8/32 or more since am ratesheet print"
MC : "REPRICE: 1:35 PM - Sierra Pacific Better"
Tom Schwab : "REPRICE: 1:34 PM - Franklin American Better"
Tom Schwab : "REPRICE: 1:33 PM - AMC Better"