Thank you Italy... Your political instability has trickled all the way down to MBS, allowing production coupons to have their single best rally day since QE3 was announced and to hold almost all of those gains the following day despite stronger economic data at home. The preceding note from us to Italy essentially sums up our take on the day. Sure, it's reasonable to consider that markets were sidelined ahead of Bernanke and Auctions to some extent, but if that was sufficient to explain the lack of overnight movement, markets were suspiciously calm in response to those two domestic events. Or perhaps stronger economic data and dovish Bernanke prepared text were perfect foils for each other at 10am? Nope... The Euro led both bonds and stocks by several minutes during the bigger moves after 10am. Top that off with US markets turning the corner right after Europe closed and the case seems clear. Between day 2 of Bernanke, potential pre-sequestration headlines, lots more economic data and month-end, the potential for volatility is high, but as long as Italy makes no governmental progress, things look better than they've recently looked.
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 Hit New PM Lows, Negative Reprice Risk Looming
Fannie 3.0s are down 4 ticks on the day at 103-15 as Treasuries have followed equities higher into the afternoon. 10yr yields broke above a short term pivot at 1.874 and are currently finding support at 1.886 as S&P's hit their highs at 1498. 10's are back down to 1.8791 currently, but the afternoon weakness is still playing out and shouldn't be assumed to be "defeated" just yet.
For now, Fannie 3.0s have held at or above 103-15. This is probably just weak enough for the edgiest lenders to entertain a negative reprice, but just strong enough to avoid a majority of any potential reprice risk. A break to 103-14 or below that lasts for more than a tick or two would increase these risks with 103-13 taking things from "possible" to "likely." Bottom line, we're right on the edge for now--probably safe if we fall no further, and increasingly less safe with each tick below 103-15.
Stock Lever Leads Slight Pull-Back Around Auction
It's not a perfect one to one relationship, but the major peaks and troughs in stock prices and bond yields have occurred at exactly the same times yesterday and today. Heading into the afternoon, Treasuries and MBS have given up just a bit of ground, but are actually resisting a relatively more pronounced bounce back in equities. S&P's are roughly 8 points off their lows and 10yr yields have moved up about 1.5 bps. Fannie 3.0s MBS are down 2-3 ticks from noon highs, but aren't in any sort of aggressive selling pattern (net unchanged on the day!).
The 5yr Treasury auction was of relatively little consequence with utterly average results all the way across the page. It was more of an acquiescence to yesterday's move and current uncertainty.
From here on out, the "risk-on/risk-off" trade looks like it's continuing with the most recent moves in equities and bond markets continuing to mirror and match for the most part. If anything, bond markets may be showing a bit of incremental determination over the past 10-15 minutes to hold ground at support levels. This could soon lead MBS into the green and increase positive reprice possibilities. A few lenders have repriced.
1.874 is relevant overhead technical support in 10yr yields. Below there and we're feeling pretty good. Rising above, we're risking a bit of follow-through weakness in MBS. The days previous highs at 103-21 would be resistance for now, with a break above ramping up positive reprice potential. Near term support is right around 103-17. All told, things continue to be surprisingly calm and narrow given the ferocity of yesterday's moves.
Live Chat Featured Comments
Tom Schwab : "REPRICE: 1:13 PM - AMC Better"
Matthew Graham : "vs. recent averages, a "B." Pretty vanilla. Indirects about average."
Jason Wilborn : "seems like a high indirect"
Matthew Graham : "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.85, NON-COMP BIDS $24.01 MLN "
Matthew Graham : "RTRS - U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 0.777 PCT, AWARDS 12.52 PCT OF BIDS AT HIGH "
Timothy Baron : "It'd be nice to see a bounce here and stay above the trendline."
Eric Franson : "REPRICE: 12:32 PM - Wells Fargo Better"
Andy Pada : "okay. Bernanke always seems to be the smarter one in the conversation. Didn't see it with Warren."
Matthew Graham : "there are almost no "um's" right now, vs a plethora around other topics"
Matthew Graham : "stoic nature shaken yes, but "gotten the better of" not the way I heard it. Open to interpretation though."
Andy Pada : "I am proponent of Bernanke, but that doesn't blind me to repartee that seems to have shaken his stoic nature."
Scott Valins : "you can tell Bernanke is nearing the end of his last term. His responses are much sharper and less sugar coated. He's telling it how he feels"
Niccolo Satullo : "He looks...angry"
Andy Pada : "seems like Warren is getting the better of him right now"
Matthew Graham : "RTRS- BERNANKE SAYS BENEFITS OF BEING LARGE FOR A BANK ARE GOING TO DECLINE OVER TIME "
Matthew Graham : "RTRS- BERNANKE SAYS EXPECTATIONS THAT TOO BIG TO FAIL BANKS WOULD BE BAILED OUT IF GOT INTO TROUBLE ARE INCORRECT "
Matthew Graham : "warren looking for a fight, but Bernanke using Aikido moves"
Matthew Graham : "RTRS- BERNANKE SAYS DOES NOT SEE MUCH EVIDENCE OF AN EQUITIES BUBBLE "
Michael Kelleher : "Can't wait for Warren v. Bernanke as a MA resident"