Bond markets continued to heal after dodging a few of the same old bullets from FOMC Minutes. This time around, ongoing QE expectations were called into question by some FOMC members' contentions that QE3 might have to be ended before labor markets realize the stated goal of a "substantial recovery." This sent MBS and Treasuries close to their weakest levels of the day, but both were able to avoid breaking through (thereby also rejecting recent lows from 2/14--both good technical developments).
Volume began to ebb for bond markets after the second pop of selling failed to challenge the first. At that point, equities markets got involved in a big way with S&P's proceeding to slide to their worst loss since mid November. Perhaps this loses a bit of it's bite considering that yesterday was the highest close in more than 5 years or that current levels would still make for the highest monthly close in 5 years, but it helped bond markets just the same.
10yr Yields are down to 2.0104 after the official 3pm close and Fannie 3.0s ended their day just 1 tick into the green at 102-26, prompting just a few lenders to offer token reprices. That said, it doesn't seem like it's yet time to be complacent and comfortable with respect to longer term "bouncing" possibilities with 10's still over the important pivot point at 1.998 and with MBS not even moving to challenge it's own longer-term pivot at 103-00. While we do see good support in terms of 10yr yields at 2.04, the resistance at 1.998 is equally ominous, as is the fact that this massive sell-off in equities has gotten us nowhere near testing important bond market milestones. Battle won today....
War far from over....
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 3:15 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
Several Important Highlights From FOMC Minutes
"Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved. For example, one participant argued that purchases should vary incrementally from meeting to meeting in response to incoming information about the economy. "
"A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred. Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred. "
" A few participants noted examples of past instances in which policymakers had prematurely removed accommodation, with adverse effects on economic growth, employment, and price stability; they also stressed the importance of communicating the Committee's commitment to maintaining a highly accommodative stance of policy as long as warranted by economic conditions. In this regard, a number of participants discussed the possibility of providing monetary accommodation by holding securities for a longer period than envisioned in the Committee's exit principles, either as a supplement to, or a replacement for, asset purchases. "
Bouncing Back?! For Now, Yes!
Fannie 3.0s dipped to 102-20 at their weakest levels post-FOMC-minutes. 10's briefly crested 2.04 but both have reversed course and made it mostly back to pre-release levels. Fannie 3.0s are currently unchanged on the day at 102-24 and 10's are slightly improved at 2.0139. This is could mark the inception of something very positive if we continue through to better levels or something very negative if bond markets treat previous levels as resistance now. The inflection point for MBS today is just at 102-25. The recovery mitigates some of the reprice risk, but the drama may be far from over.
First Move Is Weaker Following FOMC - Negative Reprice Risk
While this could just be the "knee-jerk," it's too soon to tell. 10's are up over 2.03 and MBS have fallen a few quick ticks. Negative reprice risk is rapidly increasing. More to follow....
European Close, Positive Tradeflows, Stock Lever Help MBS
Equities were sold at 11am to cover shorts in bond markets after the Fed's scheduled round of Buying in the 7-10yr sector from 10:15 to 11:00am. This coincides with EU bond markets closing marks with equities following at 11:30am. All of the above have acted as sort of a pressure release for domestic bond markets which have since seen actual buyers emerge post-short-covering.
It's nothing definitive so far, but it has made for a quick 2bp drop in 10yr yields and a quick 3 ticks higher in MBS prices. If we hold here for more than a moment or two, some of the early pricing lenders could already be poised for a positive reprice. That said, we'd expect generally conservative strategies ahead of FOMC Minutes at 2pm.
10's are currently down to 2.01 and Fannie 3.0s are up 3 ticks on the day at 102-27. S&P's are off a quick 7 points from opening levels and the stock lever has been well connected all morning.
Live Chat Featured Comments
Andy Pada : "I don't know but the highlights from the minutes don't seem so daunting. "
Tom Bartlett : "The fact we did not break the recent range to the wrong side is a major victory for rates..not great for economic indicator."
Gus Floropoulos : "considering the semi-positive tone of the minutes, I would say down a couple of ticks is a victory"
Brett Bly : "I'm suprised we're holding up as well as we are given the minutes..."
Jon : "10's stuck between 1.92 - 2.05. I wonder what's going to be the headline to make it jump out of this range (lower of course!) because the data doesn'y seem to matter anymore."
Scott Rieke : "The minutes basically told us, they still don't know what they are doing, but they are going to keep doing it"
Gus Floropoulos : "thanks for the manual updates MG! "
Ken Crute : "MG perfect timing on the alert! thanks "
Michael Tadros : "REPRICE: 2:17 PM - Provident Funding Worse"
Matthew Graham : "102-22, starting to bounce back. 10's at 2.0226"
Edgar : "after hitting 2.05 on the 10 year, i think we're back down to 2.03"
Nate Miller : "not sure I'm liking the first headline "fed to consider QE changes in March..."
Matthew Graham : "RTRS- SEVERAL FED OFFICIALS ARGUED POTENTIAL COSTS OF REDUCING OR ENDING ASSET PURCHASES TOO SOON ALSO SIGNIFICANT-MINUTES"
Matthew Graham : "RTRS - A NUMBER OF FED POLICYMAKERS AT JAN. 29-30 FOMC SAID MAY NEED TO TAPER OR HALT QE3 BEFORE SUBSTANTIAL LABOR MARKET IMPROVEMENT OCCURS-MINUTES "
Roger Moore : "REPRICE: 12:13 PM - Franklin American Better"
Gus Floropoulos : "indeed, the co-branding feature is an easy way to share the wealth of knowledge and make yourself look sophisticated"
Ted Rood : "If anyone here is NOT forwarding the daily rate outllook emails to clients and referral partners, you're overlooking a great way to educate them and show you're an expert."
Gus Floropoulos : "agreed Lynn"
Lynn ONeal : "today is a perfect example of how our MBS live membership pays for itself"
Nate Miller : "at this point no reason to lock right now just keep your finger on the lock button and keep glued here "
Gus Floropoulos : "plus 53 days ago pricing was a bit more flexible"
Brayden Alexander : "if the floated at 3.5, then they should be happy to still be able to lock at 3.6. Lock it"
Ted Rood : "You're already in the 15 day lock window, why wait too much longer???"
Mike Drews : "will they be more upset at 3.875?"
Scott Valins : "don't torture yourself TQ. If clients are ok with the higher rate lock it"
Thomas Quann : "Just jumped back on here. Anyone think FOMC will help us?"
Gus Floropoulos : "narrow rangein 10's I think has been a net positive for us."
Nate Miller : "...they like to come out at least an .125 worse almost every morning then give it back like they are doing a favor"
B-C : "provident shouldnt count"
Jeff Anderson : "Surprised anyone would reprice prior to the Fed minutes."
Rob Clark : "REPRICE: 11:47 AM - Provident Funding Better"
Matthew Graham : "10's hit intermediate trend resistance here. a break lower than 2.01 would be tough, but would also suggest a test of 1.998"