When is strength actually weakness in disguise? This is not a trick question. It's probably applicable to many topics, but today it runs the risk of being applicable to bond markets and mortgage rates. This isn't to say that interest rates are definitively "doomed" and that any motions toward recovery are therefor invalid. This isn't the product of brainwashing or band-wagon jumping with the multi-month bias moving us regularly higher in rate (though such ignorance is temptingly blissful). This is quite simply about the fact that bond markets rallied today and were clearly unwilling or unable to move past the technical levels that would pique our interest in further positive possibilities. Sure... that could easily happen tomorrow, but all we know is that it didn't happen today.
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
MBS Dip Below Previously Supportive Range Into 3pm Close
Just a few minutes before the 3pm close a flurry of activity hit Treasury futures with big trades ostensibly shifting positions from March to June deliveries. In and of itself, that's a normal part of being within a month of the Treasury futures "calendar roll" that happens every 3 months, but either the huge outflow spooked accounts and caused a mini snowball of follow-through, or it was part of a generic weakness because 10's moved a quick 2bps higher and still seem to be climbing while money still looks to be flowing out of TSY futures (connotes profit taking).
MBS haven't much enjoyed that drama with Fannie 3.0s falling from 103-02 to 102-29 in fairly short order. In and of itself, this gap in prices doesn't suggest negative reprices, but as we often note, when a trend emerges that is both "late in the day" and "abrupt," each tick of movement can be a bit more meaningful than if we were assessing gradual ebbs and flows during more liquid times of the morning hours.
Reprice risk is likely mostly at bay for now, though a few of the jumpiest lenders could be close. We'd need a bit more weakness to say that reprice risk is more than outside possibility at a scattered minority of lenders. Here's hoping we don't get back to you with that news in a few minutes!
Narrow Range Challenging Best Levels. Reprice Potential?
MBS and Treasuries have both traded eerily narrow ranges so far today and Treasuries have just now broken out to the downside in yield. For 10's the long term technical level of 1.9636 stretches back to July 2012 and provided resistance earlier this morning. Shortly after the 30yr TIPS auction and a mixed batch of Fed-Speak, 10's tested a break of the technical level which has precipitated a mini technical/tradeflow snowball to lower yields (currently 1.9584).
The next echelon of technical resistance comes into play closer to 1.9500, but that horizontal zone is less tidy and precise than the 1.963 mark. For now, we'll take what we can get, and so will MBS, having moved back to their best levels of the day, but not yet through them. Fannie 3.0s are up 8 ticks at 103-02, and this has been enough for a "stability reprice" from one lender even though current prices are only 2-3 ticks better than rate sheet print times.
Additional reprices are possible thanks to the stability--especially if we add on to gains--but not likely to be widespread unless we pick up another 2-3 ticks.
Live Chat Featured Comments
MC : "REPRICE: 3:52 PM - Flagstar Worse"
Sloan Davis : "REPRICE: 3:49 PM - Sierra Pacific Worse"
Chris Kopec : "I'm floating new stuff. NFP is the next chance I see for any good economic news."
Ted Rood : "Just happy to see 103 for more than 60 seconds."
Andrew Horowitz : "in the grand scheme of things the way tsy have traded recently Ted, 1.95 is a mile a way"
Ted Rood : "1.95 not that far off at the moment!! ;)"
Matthew Graham : "there's been a good amount of short covering in fits and starts all week, again this morning, and again from noon until about 5 minutes ago. I think any latent, larger short base wouldn't be stopped out until getting closer to 1.950, but I'd like to emphasize that this is a wild guess off the top of my head."
Victor Burek : "any chance we start to see a short squeeze on treasuries?"
B-C : "it's early yet Ted"
Ted Rood : "Nice to see equities drfopping for 2nd day. Was pretty sure they couldn't go up indefinitely."
Matthew Graham : "something we can all agree on I'd imagine"
Matthew Graham : "RTRS- FED'S BULLARD SAYS FOMC HAS NOT BEEN CLEAR ENOUGH ABOUT WHAT WILL HAPPEN WHEN A POLICY 'THRESHOLD' IS CROSSED"
Matthew Graham : "RTRS - FED'S WILLIAMS SAYS EXPECTS FED BOND BUYING WILL BE NEEDED "WELL INTO THE SECOND HALF" OF 2013"
Matthew Graham : "RTRS- WILLIAMS: US NEEDS "POWERFUL AND CONTINUING" MONETARY ACCOMMODATION TO BOOST HIRING, INFLATION TOO LOW"
Ted Rood : "and MBS purchases to be expanded to 100B per month, lo comp guaranteed at 200 bps on all loans."
Matthew Graham : "RTRS - WILLIAMS: US UNEMPLOYMENT TO STAY ABOVE 'NATURAL' RATE FOR SOME TIME, MUTE WAGE PRESSURES, KEEP INFLATION IN CHECK"
Matthew Graham : "RTRS- WILLIAMS SAYS CURRENTLY ESTIMATES 'NATURAL' RATE OF US UNEMPLOYMENT AT 6 PCT, BUT WILL FALL AS ECONOMY HEALS "
Matthew Graham : "RTRS- WILLIAMS: RECOVERY WILL BE SLOW TO CUT UNEMPLOYMENT, JOBLESS RATE TO STAY ABOVE 7 PCT UNTIL AT LEAST END-2014 "
Matthew Graham : "RTRS - U.S. FED'S BULLARD SAYS BEST NOT TO DO MORE ASSET PURCHASES THAN YOU HAVE TO, BECAUSE THERE IS UNCERTAINTY AROUND PROGRAM "
Matthew Graham : "Recent little blip (and increased flashing lights in Treasuries) was the 30yr TIPS auction. Doesn't look like a range-breaker for now. bid-to-cover was light. Indirects were strongest since Feb 2011. Yield award was 2.4bps higher than expected, but within the standard range for the issuance (which is pretty wide)."
Rob Clark : "30 year fixed only"
Rob Clark : "REPRICE: 1:06 PM - Provident Funding Better"
B-C : "more than we will ever see in 1 year"
Victor Burek : "how many jobs would have to be created to get to 6.5% in just over a year"
Victor Burek : "yep, can kicked, but more uncertainty is coming"
Matthew Graham : "the "more potent" thing is troubling in that regard."
Matthew Graham : "FED'S BULLARD, CITING CALMER EUROPE, BETTER EMERGING MARKET OUTLOOK, SAYS REDUCED UNCERTAINTY COULD LAST SOME TIME "
Matthew Graham : "yeah, found the one I was looking for... from 2/13 : RTRS- FED'S BULLARD SAYS LOWER GLOBAL ECONOMIC UNCERTAINTY IS BULLISH FACTOR FOR U.S. GROWTH IN 2013 "
Victor Burek : "but they want public to think so"
Victor Burek : "but fed cant pat themselves on back for that, but they can for qeforever"
Matthew Graham : "yet, I believe he himself has mentioned ebbing EU concerns"
Matthew Graham : "that would be misguided to some extent, right? because much of the "bounce" is the ebbing of EU concerns."
Victor Burek : "sure seems like that is what he saying"
Matthew Graham : "what do you think he's saying here? More effective? I'm gonna take a look at the transcript and see if it's made clear there, but it seems like an interesting thing to say."
Matthew Graham : "RTRS- FED'S BULLARD SAYS CURRENT ASSET PURCHASE PROGRAM IS 'POTENT' RELATIVE TO EARLIER PROGRAMS "
Matthew Graham : "in other news, help me out with this:"