Whether or not we agree that the "Great Rotation" will continue to, well... rotate, its inherent themes have been playing out in markets daily. Today was a great example as the morning's gains (which looked like a push back against yesterday's weakness in a "continuation" sort of way) turn out to merely be short-covering that paves the way for more neutral perches to add the next position. In other words, we know that plenty of bond traders had open bets on higher rates last week (more on that from the widely followed JPM Survey showing less neutral, more longs, and most shorts since July 2011). The break below 1.97 overnight and this morning in 10yr yields was a line in the sand for short positions put on last week, and the weaker Consumer Confidence numbers obviously added to those short-covering urges.
That set up a bad afternoon for bond markets, which, having recently been purged of any latent, artificially supportive short covering sprees, were now free to make new bets again. Stocks gave cues as they managed to shrug off the weak data. With FOMC coming up the next day and a pervasive bearishness to fear in general, time for more shorts! Things are probably more balanced around these 2% levels in 10yr yields and there are plenty of reports of longer-term, strategic account types coming in for opportunistic buying at the 6+ month high yields. Wednesday through Friday's flurry of significant data will either make that look like a good decision or a bad one. We're planning on getting our best sense of that after tomorrow's FOMC Announcement, though brisk movement is possible in the morning with ADP and GDP.
Oh yeah, and MBS followed the Treasury rally and subsequent sell-off. Tons of lenders repriced worse, bringing most rate sheets back in line with yesterday's.
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 4:07 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
Here We Go.... Breaking Into New Lows... Stock Lever In Play
The "risk-on" snowballs are sliding, though not any more aggressively than they already were. We said we'd update you if the ground-holding changed, and it's changing. Stocks have ticked a bit higher, as have Treasury yields ( up to 1.996 just a moment ago) and MBS have fallen to new lows of 103-07. Reprice risk notches incrementally higher, and will do so again if we see 103-05.
Negative Initial Reaction To Auction. Trying To Hold Ground
The 5yr Treasury Auction was broadly in line with recent average levels of demand as well as the expected yield award (as suggested by "when-issued" levels at 1pm). The fact that the auction was essentially average, EVEN AFTER four sessions of significant weakness is perhaps indicative of a worse-than-average reality for bond markets.
In other words, the auction itself may have been average, but we would have liked to have seen a stronger result given the recent cheapening of Treasuries if we were to read any positivity into the result. MBS and 10's have clearly not seen the auction as any reason to move back in friendlier directions an instead have weakened slightly. The stock lever continues to be in play with prices rising before and after auction time.
10yr yields are up to 1.9865 and MBS are doing their best to hold near the lows of 103-08 to 103-09. Reprice risk is still in the air, perhaps more developed than it was earlier. On the other hand, 10yr yields have put in highs as of 1:06 (at 1.994) and holding that ceiling has been salubrious for MBS in turn.
Bottom line, reprice risk lingers, but no rampant, directional sell-off at the moment. We'll let you know if that changes for the worse.
MBS Hit Session Lows. Reprice Risk Already?
In short, yes... There's reprice risk already. So we'll keep this short. We're not seeing much outside post-Fed-buying volatility in bond markets combined with an intact stock lever pulling yields higher. Maybe we have a bit of a pre-auction concession being built in, but stocks and bonds have been too well-connected since 10am to overlook the "risk-on" stock-lever inspiration.
Fannie 3.0s are now down 4 ticks on the day at 103-11, far enough away from the 103-16 prices that prevailed during rate sheet print times to already introduce negative reprice risk. 10yr yields are up to 1.9758 and S&Ps are 3-4 points higher than their previous resistance ceiling.
Live Chat Featured Comments
Steve Chizmadia : "REPRICE: 2:31 PM - Pinnacle Worse"
Eric Franson : "REPRICE: 2:27 PM - Wells Fargo Worse"
Michael Mitchell : "REPRICE: 2:21 PM - Kinecta Worse"
JRS : "REPRICE: 2:19 PM - Stonegate Mortgage Worse"
JRS : "REPRICE: 2:19 PM - BB&T Worse"
Matt Hodges : "REPRICE: 2:18 PM - M&T Bank Worse"
JRS : "REPRICE: 2:18 PM - Franklin American Worse"
Rob Clark : "REPRICE: 2:11 PM - Stearns Lending Worse"
Nate Miller : "REPRICE: 2:04 PM - Caliber Funding Worse"
Jason Wilborn : "I think the UW report on Friday hurts us some more"
Gus Floropoulos : "i believe u r right Jdub....unfortunately"
Jason Wilborn : "good chance rates continue their upward trend for a bit longer"
Rob Clark : "REPRICE: 1:42 PM - Provident Funding Worse"
Gus Floropoulos : "stock markets open in the red, and close in the green....very indicative of a BULL"
Jason York : "REPRICE: 1:41 PM - Fifth Third Mortgage Worse"
Nate Miller : "REPRICE: 1:31 PM - Interbank Worse"
Dena Zeman : "no reprice w wells yet"
Paul Philbin : "Wells hasn't reprice on me. "
Adam Dahill : "anything on wells? no reprice? I think my lock desk has been shutting down in anticipation of a reprice and I want to call them on it."
Adam Dahill : "did wells reprice?"
Jude Bridwell : "reprices for the negative seem almost a certainty today MG?"
Matthew Graham : "As per usual the "in context" grade is different though. In this case, lower, because we would have hoped to see stronger results given today's weakness heading into the auction as well as broader weakness over the past 4 sessions."
Victor Burek : "trend is not our friend"
Jude Bridwell : "tired of this sea of Red."
Matthew Graham : "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.88, NON-COMP BIDS $29.27 MLN "
Matthew Graham : "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 0.889 PCT, AWARDS 32.39 PCT OF BIDS AT HIGH "
Matthew Graham : "Auction coming up. Recent average BTC has been 2.85 and WI is trading just about 2bps higher than 5yr TSYs cash."