If you read this commentary with any sort of frequency, you may have noticed a trend of late, where the mid-day recap has been coming out later than normal. As we've said, this happens when MBS have sold off sufficiently, and early enough in the day to create negative reprice risk before the time the mid-day commentary is automatically collated in our system. Unfortunately for bond prices, that's happened quite a lot lately. During these times, I'm writing reprice alerts for MBS Live
and interacting in real time with the other members of the MBS Live community on the dashboard. The first reprice alert today was out at 10:39am, well in advance of any lender reprice, and I've written two additional updates/alerts since then. Even before the alert, the MBS Live Dashboard
lit up like the 4th of July (but mostly with red fireworks), and the live chat was buzzing with reactions to the sell-off. I don't make it a habit to plug our paid service too much in the stuff that I write, but today is one of the days where it would be inexcusable for me not to do so considering the timeliness of the pricing and alerts, and if I might be so bold, the quality of the content. The past few weeks have been rough for prices, and unpleasant for many of our members, but they've also enjoyed unparalleled warning on reprices and indeed been able to witness to catastrophes in real time every day. In short, I'm sorry the recaps have been occasionally delayed, but I've been needed on MBS Live
, and that's where you should be if the timeliness of the content is even remotely important to you.
On a market related note, the seeds of today's trauma are planted in the recap below, but more will be coming at the end of the day. Here's part of the most recent alert that will show up in tonight's recap: "After Bernanke said that the FOMC "could take a step down in the pace of purchases in the next few meetings," it was off to the races for bond markets. The sell-off was covered in the last alert, but what now? It's not as if Bernanke said anything that markets weren't already prepared to hear and nothing very different from the recent batch of Fed-speak suggesting the same. Perhaps those similarities are reflected by the fact that MBS and Treasuries merely hit their weakest recent levels without breaking through. But after the Q&A ended, imaginations are running wild and MBS are revisiting their weakest levels of the day, as are Treasuries." Negative reprices are a way of life so far today. It's not a Black Wednesday just yet, but definitely a medium-dark shade of grey.
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 11:08 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
Bond Markets Have Decided To Tank Now. Negative Reprice Risk.
Bernanke has been remarkably candid in discussing the prospects for tapering QE, and while this doesn't come as a surprise, it does confirm the logical parts of the "Hype" over the past few weeks. The nail in the coffin at the moment was Bernanke's statement that Fed could act before labor day in Early September, but declined to put a date on when Fed might change pace.
The important part is that he's speaking ASSUMPTIVELY regarding tapering. Not "IF" but "WHEN," and the when is looking like it's "SOON."
MBS have gone south with a reckless ferocity, and by the time you read this, there's no telling exactly how much worse off they'll be than current levels around 102-10. 10yr yields briefly cracked 2.0 and are currently at 1.9998. Negative reprices are likely.
Bernanke's Prepared Remarks Provide Early Boost
Before the Joint Economic Committee, Bernanke's prepared testimony has provided an early boost for bond markets. (watch it live
) as he essentially says "we know what we're doing.' Here are the bullish highlights:
- Inflation is stable and likely to stay that way
- Policy is providing significant benefits
- Tightening too soon would carry substantial risk
- FOMC has made it clear it's ready to reduce QE if needed
- Policy has helped offset deflation pressures
- FOMC is aware of the risks of QE and low rates
- We'll continue bond buying until substantial labor market improvement
Taken together, these comments do much to address the burgeoning speculation over the past two weeks and provide something of an inoculation against any tapering comments in the Minutes later today. After all, this is the Chairman, whereas the Minutes will give voice to the FOMC members on the other end of the spectrum.
Fannie 3.0s are now up 9 ticks at 103-01 and 10yr yields are down to 1.9002. Bernanke is just wrapping up his prepared remarks and will soon being the Q&A portion. So far so good... With economic improvements (relative) to lean on, low inflation, and strengthening housing market, Ben has room to put pressure on congress regarding fiscal policy and take some of the focus off monetary policy. He looks like he's ready to 'dish it out' a bit today, so it should be interesting.
Keep in mind this speech is distinct from the FOMC Minutes which will be released later today at 2pm.
Bond Markets Slightly Stronger Ahead of Bernanke Testimony
10yr yields touched their best levels of the week to start the overnight session and chopped uneventfully higher during Asian market hours while maintaining yesterday afternoon's strong late-day range. The Bank of Japan's Kuroda said the recent epic selling spree in Japanese government bonds isn't having a big impact on the economy and the BoJ stands ready to make adjustments to their QE programs to prevent volatility in bond markets from "spreading excessively."
Treasuries rose to their highest overnight levels after Fed's Dudley--who many see as a reasonable proxy for Bernanke himself--said that the Fed hasn't decided on timing or steps of tapering, and that such a decision would require 3-4 months. He further noted that the Fed wants to make sure markets don't overreact when that time comes, essentially confirming the current "conspiracy theory" of some evidence of "tapering talk" likely contained in today's Minutes, and the preceding scramble to get the word out over the past two weeks.
Bonds got a boost from weaker-than-expected Retail Sales in the UK, which clearly marked the turning point at weakest levels overnight. 10yr Treasuries moved from the mid 1.94's to 1.921 and coasted into the domestic session mostly sideways, but with some pre-Bernanke volatility. The Fed Chairman appears this morning in front of the Joint Economic Committee at 10am. As a "for instance" on the this speech being today's dark horse market mover, RBS characterized it as the "most appropriate opportunity" to get a "signal that tapering in the size of the Fed's monthly purchase pace is imminent."
10 yr Treasuries are currently down 1.4 bps from 5pm at 1.9159 and Fannie 3.0s are up 5 ticks at 102-29. Stocks are slightly higher vs yesterday's 4pm levels, but haven't made it back to yesterday's highs.
Live Chat Featured Comments
Tom Schwab : "REPRICE: 11:05 AM - AMC Worse"
Tom Schwab : "REPRICE: 11:04 AM - Franklin American Worse"
Matthew Carver : "REPRICE: 10:59 AM - Flagstar Worse"
Bryan LaFlamme : "REPRICE: 10:57 AM - 360 Mortgage Worse"
Eric Schuchaskie : "REPRICE: 10:57 AM - Quicken Loans Wholesale Worse"
Edgar : "Weird morning. Who wants to bet any reduction this year in the Fed buying Treasuries mirrors the reduction in the need for the US to sell debt? "
Oliver S. Orlicki : "look at this movement"
Christopher Stevens : "this is an unbelivable trading range"
John Tassios : "Treasuries really selling off quicker now"
Jude Bridwell : "Gettin ugly fast"
Jeff Anderson : "That's the one that hurt the most, I'd think. "Step down in next few meetings""
Matthew Graham : "RTRS- BERNANKE, ASKED IF FED COULD ACT BEFORE LABOR DAY IN EARLY SEPT., DECLINES TO PUT A DATE ON WHEN FED MIGHT CHANGE PACE OF PURCHASES "
Christopher Stevens : ""Desire to get back to a predominantly Treasury security portfolio." !!!! "
John Tassios : "why the pullback? / I just came back to my office / Did Ben say anything to cause the selloff?"
Brayden Alexander : "ugggghhhhh. It was nice while it didnt last"
Scott Davis : "15 min, 8 ticks gone...."
Oliver S. Orlicki : "why we shooting up like this?"
Matthew Graham : "RTRS- BERNANKE REMINDS CONGRESS SLOWNESS OF US RECOVERY CAN BE EXPLAINED BY HEADWINDS INCLUDING FISCAL DRAG "
Matthew Graham : ""Could take a step down in the pace of purchases in the next few meetings.""
Andrew Horowitz : "expect volatility as every word that Ben utters is going to be parsed"
Christopher Stevens : "wow don't like that comment"
Matthew Graham : ""Desire to get back to a predominantly Treasury security portfolio." !!!!"
Matthew Graham : ""we could normalize policy by simply letting securities roll off and I think there are several advantages of doing that.""
Matthew Graham : ""not necessary to sell MBS""
Matthew Graham : "RTRS - BERNANKE SAYS FED WILL GRADUALLY REDUCE THE FLOW OF ASSET PURCHASES IF LABOR MARKET IMPROVES IN A REAL AND SUSTAINABLE WAY "
Matthew Graham : ""As economic outlook improves in a sustainable way, the committee will reduce purchases.""
Scott Rieke : "No, it could go either way. I'm just saying the recent rally is a setup for the Fed minutes."
Tim McNerney : "scott are you saying the minutes will boost the rally?"
Scott Rieke : "Let's see what the Fed minutes do to that. This is just front-running that. Along with the dovish Fed speak"
Roger Moore : ""would endanger recovery""