Whereas yesterday's session was straightforward in both European and domestic hours today's was a bit more enigmatic. Reason being: we had a fairly big beat on Jobless Claims and a weak showing at the 30yr Auction--two things that would normally point to weaker MBS--yet prices essentially rallied after both those events. A closer look reveals that the rally didn't really begin until 10am with Claims indeed making life a bit tougher for bond markets at first. MBS benefited from excess demand in 3.0 coupons today, but one big reason for that is their previous "excess weakness" in the past few days. A technical bounce in the spread between Fannie 3.0s and 3.5s coincided with some resilience in Treasuries and less supply on the shelves than traders were after, leading to an outperforming day. 3.0s ended up giving up some of their gains vs 3.5s and are now merely unchanged (despite being up more than a quarter of a point from morning lows) while the rest of the stack remains in the green.
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
Weak 30yr Auction Puts Bonds Back In Their Place, Or Does It?
Silly bond markets! They'd gotten a bit overzealous heading into today's auction with 10's ratcheting down to 2.035 for what seemed like "no good reason." Same story in MBS (in fact MBS may have been the culprit for the bullishness in Treasuries) as production coupons started heading north just after 12 noon.
There likely had to be one big buyer to get that party started, but after that, a quick check of the facts reveals the MBS levity to be a "coulda had a V8" moment. Clues were in higher coupons which have been rallying better than lower coupons on the day, and performing better vs benchmarks since NFP.
After this morning's ground-holding in Treasuries following Jobless Claims, mortgages began tentatively inching higher (BUT AGAIN, THIS WAS MORE APPARENT IN HIGHER COUPONS). That led to a situation where the price between Fannie 3.0s and 3.5's was as wide as it has been since NFP day, and provided a clear technical signal that "if Treasuries are going to hold their ground, it's time for 3.0s to catch up."
And that's what they've done with prices now down only 3 ticks on the day at 102-11. Wait... What? Yes, MBS are still down on the day, as are Treasuries. It's all part of the "hurry up and wait" sideways range between 2.0 and 2.075 in 10yr yields that's prevailed since NFP. MBS saw that we weren't going to test 2.075 this AM after stronger Claims data and bond markets in general, got the green light from an absence of a runaway stock rally and here we are: right back to the mid-point of the week's range in 10's and right back to the mid-point of the week's range in MBS. It feels more abrupt in Fannie 3.0s because it has been (relative to 3.5's anyway).
All that having been said, we're up enough from opening levels for positive reprices. A few have already come in. 10's are at their lows of the day, but there's been tons of short-covering, so it all reeks of a return to range-bound neutrality for now. Further facilitation of the rally past, say, 2.02 and especially past 2.0% in 10's would need something tangible. MBS, on the other hand, have some room to tighten, both vs Treasuries and vs themselves (3.0 vs 3.5s are 'allowed' to get back at least to a 2 and a half point gap before reassessing). In other words, we could see moderate additional gains, which would keep positive reprices on the table, but aren't expecting a big rally. All efforts are likely to be capped by 30yr WI's floor at 3.229. For reference, those just made it to 3.232, so we're getting close to out of steam, if not there already.
Live Chat Featured Comments
Matt Hodges : "REPRICE: 3:51 PM - Suntrust Better"
scott burman : "REPRICE: 3:25 PM - USBank Better"
Ira Selwin : "REPRICE: 3:21 PM - Franklin American Better"
Jeff Anderson : "REPRICE: 3:14 PM - Chase Better"
Nate Miller : "REPRICE: 3:03 PM - Freedom Mortgage Better"
Nate Miller : "REPRICE: 2:40 PM - Caliber Funding Better"
MC : "REPRICE: 2:35 PM - Sierra Pacific Better"
Clayton Sandy : "REPRICE: 2:35 PM - Stearns Lending Better"
Michael Mitchell : "REPRICE: 2:18 PM - Kinecta Better"
Eric Franson : "REPRICE: 2:10 PM - Wells Fargo Better"
Nate Miller : "REPRICE: 1:55 PM - Interbank Better"
Tom Schwab : "REPRICE: 1:51 PM - Flagstar Better"
Jason York : "REPRICE: 1:50 PM - Plaza Better"
Tom Schwab : "REPRICE: 1:23 PM - Franklin American Better"
Steve Chizmadia : "I call that a huge win considering the retail sales data, the claims and now a poor 30 year auction"
Michael Mitchell : "We are down 4 ticks between yesterday and today Chiz... thats what I mean"
Steve Chizmadia : "Yesterday and today MM"
Michael Mitchell : "Anyone else surprised at the lack of weakness in MBS this morning all things considered?"
Rob Clark : "D+ from Santelli"
Matthew Graham : "so a C- or D+"
Matthew Graham : "RTRS- US TREASURY - PRIMARY DEALERS TAKE $6.90 BLN OF 29-YEAR 11-MONTH BONDS SALE, INDIRECT $5.45 BLN "
Matthew Graham : "RTRS - U.S. 29-year 11-month bond BID-TO-COVER RATIO 2.43, NON-COMP BIDS $14.51 MLN "
Matthew Graham : "RTRS - U.S. SELLS $13 BLN 29-YEAR 11-MONTH BONDS AT HIGH YIELD 3.248 PCT, AWARDS 71.53 PCT OF BIDS AT HIGH "
Scott Rieke : "As evidence, the flash crash took place the same day (nearly same time) as CNBC was flashing images of the first death in the growing Greek riots."
Scott Rieke : "BB - from my current standpoint, I'm bearish our economy - hopeful, but realistic things don't look rosy. In my opinion, equities don't reflect fundamentals (don't think anyone is going to fight that one). That opens us to headline risk and market reactions which bring us back to a normalization. A tape-bomb, or something reminding the world things are what they are, will ignite a move. The highest probability for such a thing would be a negative headline, thus causing a risk-off move, driving r"
Brett Boyke : "but the dow and soon S&P: are at all time highs? You need feeling the glow from that?"
Brent Borcherding : "Which makes someone squarely in the middle appear more negative than they likely are..."
Brent Borcherding : "The thing about the sunshine pumpers, is that even the most positive outlooks aren't that positive right now."
Brent Borcherding : "There's gloom and doomers and there's sunshine pumpers...reality is probably somewhere in between."
Scott Rieke : "I hate to be such a gloom and doomer - but it comes with being on this side of fixed income. Granted, growth is the alternative, but I don't have my head stuck in the sand"