It's interesting to consider that today's weakness was essentially present from the outset ("interesting" in an awful, painful sort of way). In another sick sort of way, it was also refreshing to see markets making movements that were clearly correlated to related markets and events. Things have been a bit slow recently, and at least from an analytical perspective, they were easier to make sense of today. Sadly, that sense is a bit bearish, but here goes: Europe. That is all.... German Bunds (and other stuff like UK "Gilts") led this charge higher in yield overnight with Treasuries doing a pretty good job of fighting off the bearishness from European "core" debt markets. Quite simply, the as-expected Retail Sales report was then the staging area for tons of short covering which made for a quick head fake into better territory, followed by heavy liquidations ahead of the auction when early stock trading showed that it wasn't much phased by the economic data. MBS were already under 103-00 support and underperformed marginally as a result of the "coupon shift fear."
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
Equities Weakness Helping Bounce Back Potential
Quick update on the post-auction trading... After the initial knee-jerk to the lows of the day, MBS bounced back to pre-auction levels and did a fair job of holding those for about half an hour. Both Treasuries and MBS broke support at 1:40 and ticked just slightly lower in price to the weakest levels of the day.
Even now, we've seen another mini-bounce keeping hope alive that 102-19 will prove to be a temporary low with 102-20 holding as the predominant Fannie 3.0 support for the day. 10yr yields topped out at 2.033 and are currently down to 2.0205.
Bottom line, reprice risk remains in sort of equivocal territory and we remain hopeful that post-auction weakness (minus the 1 tick to 102-19) holds its ground at 102-20.
Regarding reprice potential, many lenders priced conservatively and the outright change in prices vs rate sheet time doesn't justify an adjustment to those prices. The only risk is the negativity in the trend since 11:30 and the current indecision at/near the lows. To whatever extent this second bounce back attempt has legs, the more we can pull away from reprice risk.
Those possibilities look dependent on stocks for now. Equities markets are currently down a few points (S&P) after hitting overhead pivot resistance in line with the morning lows. This seems to be helping bond markets dig their heels in a bit.
MBS Hit Lows After 10yr Auction
A QUICK note for those about to lock... MBS just hit their lows of the day after an understandably weaker 10yr note auction. We'd say the auction wasn't actually too bad considering the circumstances. But MBS lows are MBS lows and it increases negative reprice risk for now. Fannie 3.0s down 11 on the day now at 102-20. We could see this one bouncing back, for what it's worth (after some obligatory weakness).
10yr Auction Bullet Point Preview
- The last 4 auctions have alternated between higher and lower than expected yields, but as far as "Refunding" auctions go (which is what today is), the last two have been the worst two since 11/8/11.
- Dec 2011 through July 2012 (the latter being the strongest 10yr Auction on record--my records anyway) marked a time of almost exclusive success for 10 auctions. These were the "glory days," in a sense, and we've been trending weaker since then in terms of bid-to-cover, awarded yield vs consensus, and indirect bidding.
- Santelli's grade will be lower than it otherwise would be today because he won't differentiate between the disparate BTC statistics between Refundings and Reopenings.
- Refundings like today's average 2.76, Reopenings average 2.97.
- BUT, the refunding average is grossly distorted by the 2 OLDER auctions of the last 4. Those two go back into those "glory days" I mentioned and came in at 2.9 and 3.05.
- The two most recent BTCs were 2.59 and 2.49...ipso facto, 2.54-ish would be a more appropriate BTC consensus.
Live Chat Featured Comments
Thomas Nelson : "9....They are will only attract those that don't qualify on 97% FNMA. Lower scores and those that can't be done conventionally."
Jeff Anderson : "I don't know about the u/w getting tougher in the last 6 months but the increase in costs is definitely an issue. Pushing deals to other products, obviously their intent, or juts making the deal not a deal. So I'd say an 8."
Ted Rood : "8/10. Raisng MIP and making it permanent will only reduce their portfolio and revenues. Doesn;t do much good to raise the rates and have revenues go down!"
Charles Eriman : "7. if 10 = true and 1 false."
Matthew Graham : "Quick informal poll for those who have been paying attention to the FHA MMI drama beginning in November. On a scale of 1-10, how true do you feel this statement is: "FHA is placing and inordinate amount of attention on raising costs and lender review capabilities compared to toughening underwriting standards." I don't have an opinion per se, because I haven't kept up with every last page of bureaucratic reports and testimonies, but it sure seems like there's more attention on the leaves and "
Matthew Graham : "ipso facto, 2.54-ish would be a better BTC target "
Matthew Graham : "the two most recent BTCs were 2.59 and 2.49..."
Matthew Graham : "Those two go back into those glory days I mentioned and came in at 2.9 and 3.05"
Matthew Graham : "BUT, the refunding average is majorly affected by the 2 OLDER auctions of the last 4."
B-C : "hopefully he is reading this"
Matt Hodges : "given he follows mbs live"
Matthew Graham : "Refundings like today's average 2.76, Reopenings average 2.97"
Victor Burek : "he might now"
Matthew Graham : "Santelli's grade will be lower than it otherwise would be today because he won't differentiate between the disparate BTC statistics between Refundings and Reopenings"
Matthew Graham : "Dec 11 through July 11 (the latter being the strongest 10yr Auction on record--my records anyway) marked a time of almost exclusive success for 10 auctions. Trending weaker since then"
Matthew Graham : "But as far as "Refunding" auctions go (which is what today is), the last two have been th worst two since 11/8/11"
Matthew Graham : "the last 4 auctions have alternated between higher and lower than expected yields"
Andy Pada : "Any fun facts about previous 10 YR auctions?"