From a market watching standpoint, today has been an example of one of the least stressful "headline risk" environments. Indeed, markets are highly reactive to any and all headlines out of Cyprus. Italy got their turn today as well, as President Napolitano called frontrunner Luigi Bersani to a meeting earlier (and ONLY Bersani). All told, there has been ample opportunity for quick moves higher and lower across multiple markets. Happily, MBS continue to be super duper insulated from the EU market metrics that are closer to ground zero. The movement plays out, but on a much smaller scale. Add to that the fact that MBS are outperforming Treasuries (nothing to get excited about as it's merely a corrective bounce back against recently horrid underperformance) and we're looking pretty even-keeled here in a range of 102-23 to 102-29.
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 11:07 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Negative Reprice Risk Rising For Ealy Lenders Following Euro Headlines
Coming into the day, we knew that Italian political headlines could be a risk as Italy's president said he would make an announcement. Just after headlines hit that President Napolitano is calling a meeting with Bersani (the guy he'd probably pick to give the "mandate to form a government" to), bond markets began selling off quickly and Italian credit spreads rocketed tighter.
Moments later, wires hit saying Cypriot lawmakers say a deal deal that adheres to the EU framework may be possible "within hours." Further rocketing ensured and 10yr yields are up 3bps in 12 minutes. MBS are holding their ground MUCH better but are well off their 102-29 highs at 102-24 at the moment. Lenders who priced early are rapidly approaching "reprice risk" territory.
MBS Bounce Back Slightly From Yesterday's Underperformance
Fannie 3.0's opened flat to yesterday's latest levels, but are 2 ticks higher now at 102-28. Meanwhile, 10yr yields are unchanged vs 5pm levels and 2bps lower vs 3pm levels. A low volatility morning for treasuries along with some urge to correct following 2 days of sharp underperformance are helping MBS close the gap, though they continue to underperform significantly on the week.
Overnight moves were uneventful in the big picture though some jolts were seen around the relevant Cyprus bullets. Chief among these are the following:
- Russia says no thanks to helping out Cyprus
- ECB Says bank defaults if no plan B by Tuesday, will impost capital controls
- Bank of Cyprus urges lawmakers to "take the deal!"
- Cyprus gov says they'll approve a plan B by Tuesday and prevent bank defaults
- "Bad Bank" scenario sees losses as high as 40% for uninsured deposits
- Cyprus may vote on Euro membership today!
Against that backdrop, European markets traded fairly calmly overnight, sensing that bigger considerations arrive next week. That doesn't mean we won't see tape-bombs today, but that's generally how it was traded overnight. Bund yields and Euros rose steadily from the outset of European hours and topped out just before 8am, helping Treasury yields do the same.
Earlier in the morning, 10yr yields saw strikingly regular technical resistance at 1.902, setting this up as a level that could come into play as resistance on any rally attempts this morning. For now, "so far so flat," with the aforementioned moderate MBS outperformance. We're on guard for Euro tape-bombs, but not necessarily expecting them. Italy's president is expected to make a statement today regarding the formation of a government, which could steal some spotlight from Cyprus. We're also expecting a relatively well-connected stock lever in the morning hours, so a strong open (coming right up in 5 minutes) could cause some volatility.
Live Chat Featured Comments
Matthew Graham : "RTRS- EUROGROUP'S DIJSSELBLOEM, WHEN ASKED IF GROUP WAS CONSIDERING CYPRUS EXIT SCENARIO, SAYS 'NO, CONSIDERING TO KEEP IT TOGETHER' "
Matthew Graham : "RTRS- CYPRUS RULING PARTY SAYS BAILOUT SOLUTION WITHIN EU FRAMEWORK MAY BE POSSIBLE WITHIN HOURS "
John Tassios : "at least MBS spreads coming in a bit this morning / that is good from that aspect of it "
Matthew Graham : "not meaningless IMO. If he gives Bersani the mandate. We've been waiting on that since 2/25"
Victor Burek : "seems any breaking news results in immediate risk on even though the news is meaningless"
Oliver S. Orlicki : "italy headline causing this selling?"
Matthew Graham : "RTRS- ITALY PRESIDENT NAPOLITANO SAYS CALLS BERSANI TO MEETING AT 1600 GMT "
Gus Floropoulos : "likelihood of Cyprus exiting the Euro is slim to none....and slims out of town"
Matthew Graham : "I only saw that mentioned one place btw. I haven't looked elsewhere much. Let me know if you're seeing something besides in my AM update."
Jason Anker : "we have an outside chance at seeing an EU departure today. should be interesting"
Matthew Graham : "no question MBS have been consistently obliterated all year (relative to where they were... In the long run, still "tighter" than average for sure)."
philip mancuso : "ja, to your point, late jan rate sheets/mbs were about a point better than present at same 10 year yield."
Jason Anker : "ah yes, wait and see mode for mbs, what a shame"
Christopher Stevens : "Fed making MBS purchasers nervous with all that scaling back purchases talk Wed"
Jason Anker : "10yr on a run, mbs is way behind. last time 10yr @ 1.91 MDS was over 103 with room to spare i thinsk"
Christopher Stevens : "GM all. so did MBS decide to catch up with the 10YR today?"
John Rodgers : "MBA president coming up next on CNBC"
Adam Dahill : "1.89 by days end!"