Today's trading was certainly more active than yesterday's in terms of both movement and volume. The movement started out on the weak side in US Hours, but this quickly revealed itself to be a "bear trap," as bond markets improved notably throughout the morning. MBS opened a few ticks lower than yesterday's sideways range and moved a few ticks into positive territory by 10:30am. The 10yr Treasury Auction did manage to shake things up slightly--coming in a higher-than-expected yield with average demand. But the selling that followed was limited by technical support in 10's around the 1.77 area. MBS were able to hold on to their floor at 104-00 for the most part, but slipped into the high 103's after hours. The weakness there was more incidental than determined and tomorrow's data/auction will likely have the final say.
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 Leaking A Bit Lower In The PM. Reprice Risk Probably Contained
Treasuries are backing up from their 12:30pm low yield levels with the 1pm auction being the major catalyst. We wouldn't characterize the movement as anything more than "incidental" as Treasuries are already past their official close for the day at 3pm and the focus is on stocks heading into their 4pm official close.
Reprice risk is "probably contained" because prices are only 3 ticks lower from the most aggressive lender rate sheet pricing times at maximum. That means that the pure different in prices doesn't justify even an eighth of a point drop, but some lenders get "spooked" by these sorts of late day trends.
Bottom lines: If we lose another tick or two, reprice risk picks up just a bit. If we hold steady or improve, it's more of an outside possibility that's heavily dependent on individual lender considerations. More than anything, this is a heads up to let you know we're at the lows of the day, post-9am.
Some Post-Auction Choppiness, But Technical Support For Now
Keep in mind that markets are trading "when-issued" 10yr Treasuries behind the scenes in increasing amounts leading up to auction time and that the yields are different than those seen on regular (or "cash") 10yr Notes. We raise this point to make the following: whereas cash 10's didn't quite make it back to their 1.771% level that acted as a floor this morning, WI 10's bounced perfectly on their analogous level of 1.815.
This bolstered the case for technical support coming back down in yield. In cash 10's, the bounce was at 1.769. The supportive bounce didn't result in an immediate or significant move back in the other direction, but was enough to give some support to broader bond markets including MBS. Treasuries only rallied back about 1bp before heading back toward the supportive ceiling. MBS mimicked the move by moving lower in price to 103-31+.
That second attempt at a move into weaker territory met with similar support just now (meaning that WI 10's bounced before they even made it back to 1.815 and cash 10s only hit 1.767 this time. But like last time, there's still not that "convincing" move back into positive territory.
Long story short, there is good evidence for buying and selling interest on both sides of the market, post-auction. Despite the initial move weaker, things have leveled off nicely (maybe even positively). This is helping MBS continue to bounce on the 103-31+ floor and keeps reprice risk well at bay.
First Move is Weaker Following 10yr Auction
The "high yield"--the most important part of Treasury auction results came in 1.4 bps higher than expected (expectation based on the "when-issued" yield at 1pm. Read ALL about this Treasury Auction Jargon HERE
). Bid-to-cover, a measure of the overall level of demand, was on pace with other Refunding auctions at 2.7. This may be viewed less favorably by certain pundits who are holding it up to the standard set by reopening auctions which average 2.9.
The first move for bond markets has been weaker, but not catastrophically so. 10's are up to 1.771 currently and Fannie 3.0s are down a few ticks to 103-31+. We're not into "reprice territory" yet, but neither are we necessarily done with the post-auction movement. Stay tuned...
10yr Auction Coming Up
This is the less common variety ("refunding") that creates a new security (as opposed to "reopenings" which just add more $$ to the issuance created by the "refunding"). Refundings' average stats are far worse than reopenings. Vs. a broader average around 2.9, refundings only average around 2.7 in bid-to-cover.
They also tend to come in higher than the 1pm "when-issued" yield, which is currently 1.798 at 1pm. Any "high yield" that comes in lower than that is good, and any beat of the 2.7 Bid-to-cover is similarly positive.
Friendly Technical Snowball Lifts MBS, But Bouncing Lower Now
Volume in Treasuries and European markets continues to ramp up for the week. Black box buying led a charge back down from 1.80% earlier this morning in 10yr yields. Positions from that moved were squared up heading into the 9am hour and bond markets sat sideways waiting for the next move.
That move came in just after 10:30am and was at least partially motivated by a technical break of yesterday morning's low yields at 1.77. Too, the Fed was conducting their daily buying operation at the time, which can always cause an extra bit of movement between 10:15 and 11:00am. The move past 1.77 brought in more buyers despite the advancing stock prices. Europe got on board at 10:45 as Bunds mimicked the technical break they say in 10's.
The most striking thing about this morning's sharp-ish movement is the bigger-than-usual divergence between stocks and bonds. Both have unquestionably rallied since 10am. This could be a factor of soothing ECB "stand ready to act" kind of speeches from both Asmussen and Mersch. While the names aren't of importance to MBS fans in the US, their message could be taken to imply more aggressive easing in then near term future. That's definitely the sort of thing that can benefit both equities and bonds simultaneously (and indeed, it's that "sort of thing" that's broadly contributed to the longer-term divergence in US stocks and bonds.
There are less complicated explanations, to be sure, including the fact that today's move--when viewed in the context of the few days, currently looks like a simple rejection of a 1.787 ceiling (of course 10's were briefly higher than this, but that is like the "test" of the breakout. Most of the bounces have been at 1.787. The failure of the breakout 'test,' would also help explain the rapidity of the move back in the other direction).
MBS have largely watched and observed the post-10am swings, but have done their best to come along for the ride. Fannie 3.0s made it a few ticks higher on the day now to 104-03, but just ticked down to 103-31+ as this was being written 10's bounced at 1.755 up to 1.759 in good volume.
The next major event is the 10yr Note auction at 1pm and preparations for this could be part of this recent resistance to further gains. That said, markets are aware that this week's new Treasury supply is net-negative (maturing Treasuries paid back + Fed buying > week's auction needs), so further pre-auction weakness isn't a foregone conclusion.
Live Chat Featured Comments
Eric Franson : "REPRICE: 3:26 PM - Wells Fargo Better"
Tom Schwab : "REPRICE: 2:22 PM - AMC Better"
Tom Schwab : "REPRICE: 2:22 PM - Franklin American Better"
Andy Pada : "substantively, I may agree with about 70% of what he says, but the tenor of that op-ed is just off."
Jason Adams : ""unhappy" I think you sugar coated that MG. "
Matthew Graham : ""The 60% of American homeowners who carry loans serviced by Fannie Mae and Freddie Mac need and deserve the same kind of relief. Obama can deliver for these families by removing DeMarco, right now.""
Matthew Graham : ""DeMarco’s most notable achievement has been blocking programs to help struggling homeowners.""
Matthew Graham : "http://ag.ny.gov/press-release/op-ed-obamas-underwater-rescue"
Matthew Graham : "you see schneiderman's latest? he's 'unhappy' with Demarco it would seem"
Andy Pada : "enough with these suits."
JCC : "REPRICE: 2:03 PM - Chase Better"
Matthew Graham : "RTRS- BANK OF AMERICA FAILS TO DISMISS CLAIMS SEEKING CIVIL PENALTIES UNDER 1989 FIRREA LAW "
Matthew Graham : "RTRS - U.S. MAY PURSUE CIVIL LAWSUIT AGAINST BANK OF AMERICA CORP BAC.N OVER SALE OF TOXIC MORTGAGES TO FANNIE MAE FNMA.OB, FREDDIE MAC FMCC.OB -- COURT RULING "
Matthew Graham : "yeah, WI 10's getting a good bounce and orderly mini-rally coming off the post-auction highs (translation: "agreed Ted. Things look to be calming down in the 10yr Treasuries most directly affected by the auction as well")"
Ted Rood : "nice mbs head fake for 30 secs....."
Christopher Stevens : "Rick said D-plus"
Andrew Horowitz : "i was gonna say c- "
Matthew Graham : "It's a "C" in my book, but Santelli will be rougher than that due to his tendency to overlook refunding vs reopening subtleties "
Matthew Graham : "RTRS- U.S. 10-YEAR NOTES BID-TO-COVER RATIO 2.70, NON-COMP BIDS $18.49 MLN "
Matthew Graham : " RTRS- U.S. SELLS $24 BLN 10-YEAR NOTES AT HIGH YIELD 1.810 PCT, AWARDS 94.12 PCT OF BIDS AT HIGH "
Rob Clark : "REPRICE: 12:48 PM - Provident Funding Better"
Ken Crute : "just emailed you hodgy what I got from HUD on one a while back "
Matt Hodges : "well, borrower considers the 9 month old job her "primary" employment and the 12 month old PT as her secondary, and it's FHA, so i may be okay"
Jason Zimmer : "need at least 1 year on the second PT job and likelyhood of continuance"
Victor Burek : "but don't you have to show that you had 2 jobs for 2 years?"
Ken Crute : "FHA will allow you to use 2nd job if its likely that 2nd job will continue "
Matt Hodges : "Question: borrower was school teacher FT until 1 year ago. Then, 1 year ago she started PT job, then 9 months ago started another PT job. Both total FT - can i count BOTH PTs, as if it were FT. I know if there was a FT + PT i couldn't use the 2nd"
Ryan Kelly : "Lynn, like comps seems to be the issue most people run into. So if there are comps with similiar land size you should be good with a lender that doesn't have the overlay"
Lynn ONeal : "looking into the exact land/home value"
Matt Hodges : "go with a non-overlay lender, like WF"
Lynn ONeal : "yep"
Matt Hodges : "worse than 70/30 value, i assume"
Lynn ONeal : "not jumbo..and not exactly customary either"
Matt Hodges : "is it jumbo? if not, then customary for area"
Matt Hodges : "good John Deere tractor"
Lynn ONeal : "any suggestions for over 10 acres?"
Matthew Graham : "RTRS- FISHER: FED'S QE HAS 'DONE ITS WORK'; MY PREFERENCE WOULD BE TO TAPER MBS PURCHASES FIRST "
Matthew Graham : "RTRS- FED'S FISHER: INFLATION IS NOT AN ISSUE; THE PROBLEM FOR THE ECONOMY IS FISCAL POLICY-CNBC INTERVIEW "
Andy Pada : "ryan, you can also find out how the address is listed by the current servicer and input into DU in the same manner."
Oliver S. Orlicki : "Ryan, you need to contact Fannie or look at the legal and see how it is stated. Fannie will be able to typically pick it up."
akaagassi : "havent experienced it but i'd call Fannie Mae directly to try to get it resolved..."
Ryan Kelly : "has anyone had an issue on a DU Refi Plus where the condo unit number is not correct in FNMA's database (The address that matches the refi plus database). And the incorrect address is not an actual real unit number so DU can't determine a property value to approve an appraisal waiver? If I put the correct address in, it will not recognize that the loan is HARP eligible. If you have had these please let me know how you got it fixed. My thought is to have the existing servicer update the prope"
Matthew Graham : "part of it, yes. Buying operation (scheduled) from 10:15 to 11:00am today in 7yr range. "
Joe Probst : "Is this morning Fed Buying?"
Scott Valins : "and stocks in the green"