In sort of an inverted reading of the recent script, bond markets weakened right out of the gate and began improving at 10am (several notable occasions in May have seen the opposite). From there, they kept on improving until hitting highs of the day at 2pm. For MBS it was a 20 tick swing all told, and Fannie 3.0s still hold 19 of those ticks (roughly a .625 move from lows to highs) but compared to yesterday's latest levels, only added about .375. Combine that with the fact that yesterday's latest levels were the worst of the day and it leaves today's highs right in line with yesterday's. Lenders passed on only token improvements in pricing ahead of more potential volatility tomorrow. Markets are eager to hear what Bernanke has to say in the morning when he testifies before the Joint Economic Committee. Any clues here could set the tone for the approach to the FOMC Minutes at 2pm in the afternoon. There's been a lot of build up to tomorrow and the possibilities are big in either direction.
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 4:04 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
Dudley Boost For MBS. Back To Yesterday's Highs
After Fed's Bullard was out earlier with dovish comments, NY Fed Pres William Dudley has now hit the wires with more of the same, and with some MBS-specifics to boot. Fannie 3.0s are up 13 ticks currently at 103-23 and 10's are down around 3bps on the day to 1.937
MBS are reaping greater rewards due not only to spread technicals relating to 10's run toward (and away from) 2%, but also due to Dudley's comments. The NY Fed President suggested that the Fed could decide not to sell MBS when it comes time to reduce its holdings and that this would not only avoid shocks to the market, but also prevent some risk of balance sheet loss.
The fairly simple conclusion concerns supply and demand. If we know the Fed has "lots of MBS," and that they might or might not "sell" in the future, any suggestion that they might "not sell," tips the scales in favor of "less supply" over some indeterminately long time scale, thus having a mildly salubrious effect on MBS. But BE SURE TO NOTE: that positivity is RELATIVE to the rest of the bond market and in that regard, 10yr yields just bounced after breaking below 1.93 (already back up to 1.942). So we may simply be left with MBS prices that give up less if this marks a turning point (or even just a "leveling off") in today's rally. Too soon to tell, but volume and flows make the high 1.92's look like a significant short term resistance level.
MBS Heading Into POSITIVE Territory After POMO/Bullard
(a rare positive "alert"):
Fannie 3.0s are now up 7 ticks on the day to 102-17 after hanging on to the bounce that was potentially developing during the last update at 10:15am. After the Fed's daily Treasury buying operation (aka: POMO for "permanent open market operation), yields only rose a bit more as remaining inventory was sold. Volume went dead after that and big buying came in at 11:24am in Treasuries.
That's been good for just over a bp of improvement in 10's and MBS have followed it up with several ticks more. Keep in mind that, as 10's approach 2%, Fannie 3.0s have a tendency to get especially queasy. When 10's show resilience in moving lower in this high 1.9's territory, MBS perk up noticeably. We're seeing that now, and may see reprices from some 'early crowd" lenders.
Treasuries DID, however, pause to digest Bullard's comments at 11:30, which were surprisingly dovish. Bullard said that QE is the best way to way to go when a central bank has 'near zero' rates, but this was more advice for Europe than it was a statement about current policy. It's almost as if markets were double checking to make sure there wasn't any hidden, bearish clue in Bullard's speech. 10's held at 1.96, and not even 1 minute ago, broke lower. Things are looking up for MBS for now. 1.96 is now a pivot point that we'll hope proves supportive if yields head higher.
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