There's been a bit of a lull in the action so far today--as one might reasonably expect given the upcoming FOMC Announcement, Forecasts, and press conference, combined with the fact that Cypriot banks are closed until at least tomorrow (and very likely through the end of the week). Bond markets were weaker overnight and were exceptionally well-connected to stocks, Euros, and Bunds. This suggests the broader ebbs and flows of the quintessential notion of "risk" continue to inform the action as it relates to Cyprus. On that front, headlines have been fewer and farther between today, but the European session marked a shift in the ubiquitous negativity of those headlines. For instance, Cyprus is said to be in contact with Russia for a loan that could help ease some of the current pain. Greece has also expressed interest in taking over some Cypriot banks. Finally, a senior Cypriot official noted that the country is considering capital restrictions of the banks reopen on Thursday. Bond markets bottomed out (in terms of price) just after that last headline and have been drifting uneventfully sideways, and slightly higher since then. There doesn't seem to be too much motivation to go much higher or lower ahead of the 2pm FOMC events.
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Bond Markets Weaker Overnight, Consolidating At Current Levels
With Japanese Markets closed for the Spring Equinox, US Treasuries were forced to wait for European hours before starting overnight trading. Familiar themes persisted from then with all corners of the market generally following each other in unified "risk-on or risk-off" movement.
This time it was more of a risk-on start to the day, which has weighed on bond markets a bit. Cyprus is said to be in discussions with Russia to obtain a €5 billion loan that would mostly bridge the gap that the EU currently wants to bridge via Cypriot bank account levies. No definitive progress is reported, but "trying" is apparently better than nothing.
Markets fear a run on the Cypriot banks and a potentially resulting death spiral for Cyprus and beyond. Credit spreads in other Euro nations ARE NOT yet reflecting any doomsday scenarios, however. Furthermore, some small stop-gap possibilities are on the table that are soothing panic somewhat. First is the suggestion that Cyprus may not reopen banks until March 26th! That would certainly afford some time for pulses to slow and a more robust solution to be sought. Additionally, overnight (or early morning in the US) news suggests Cyprus is considering capital restrictions when it does reopen banks, much the same way that Iceland took steps to prevent a bank run.
Since the run on the banks is the fear and since both of these factoids seem to ease those concerns, here we are with Treasuries 4.4bps higher at 1.9477 and MBS 5 ticks lower at 102-30. We also wouldn't be opposed to the notion that we're entering into some sort of pre-FOMC consolidation pattern, but the correlation with European markets overnight suggests Cyprus remains the focus for now. Absolute highs in 10yr yields have been seen at 1.949, so we'd keep an eye on those for a break higher as a potential early indicator that MBS could face a retest of their lows (102-27 earlier this morning in Fannie 3.0s vs 102-30 now).
Live Chat Featured Comments
Matthew Carver : "Robert, Theoretically, yes. He needs to call the MHA loan Mod department and keep very good records of who he speaks with and when and get the long process started. http://homeloanhelp.bankofamerica.com/en/home-affordable-modification.html the process is slow and the service is terrible, but they will review it."
Gus Floropoulos : "would think Cyprus telling the EU to get lost would send a shock to markets..."
Blair J. Beard : "He needs to get on the phone with their modification department. Unfortunately he'd be going through a 1-800 number since banks don't have people that handle them in the branches. "
Robert Rippy : "Matthew, I have a client that just left my office struggling with his mortgage at BOA. Company merger reduced his income and he has 4x30 and 2x60 on his mortgage with BOA. It is a 20 year mortgage and he needs to modify it to a 30 year. Is it possible that BOA would do that?"
Matthew Carver : "I was prevously with BOA retail. why? "
Robert Rippy : "Anyone from BOA on here?"
MMNJ : "http://emstatuscenter.com/"
Ira Selwin : "Roger - their status center says no issues"
Roger Moore : "anybody having encompass issues?"
Matthew Graham : "Another way to consider the same technical support that we seem to be having at 1.95 is via the internal trendline in the long term chart (upper dotted line here) http://tinyurl.com/cu22y3l (from this morning's and prior charts)"
Matthew Graham : "RTRS - CYPRUS GOVERNMENT SPOKESMAN DENIES REPORTS OF DEAL TO SELL CYPRUS POPULAR BANK CPBC.CY TO RUSSIAN INVESTORS "
Matthew Graham : "yes, there's definitely some significance right around current levels. I'll try to dig up the link of first time it came up, but then again on Sunday night, I said it suggested itself as a nominal post-cyprus pivot. It was also the post-italy pivot, and sort of a dividing line between risk-on and risk-off with respect to Eurodrama in 2013 (i.e. it was late Jan LTRO repayments that broke it, then it took Italy to break it coming back down)."
Jason Anker : "Stating the obvious here but 1.95 as a new ceiling for the 10 yr would be good news, must be some technical significance there"
Jeff Anderson : "GM, all. Can you do something about instituting a 45 degree angle up always, MH. I know I'd appreciate that. Thanks."
Matt Hodges : "gm, there is an ebb and flo oliver"
Oliver S. Orlicki : "Red start this morning. Lets see how things end up."