MBS MID-DAY: Big Nasty Sell-Off. Widespread Reprices
Please note the timestamp on the pricing snapshot below. This mid-day recap can occasionally be delayed if we're working on alerts and interactions with the MBS Live community, as was the case today. There have been FOUR negative reprice alerts since then (they'll show up in the MBS RECAP this evening) and prices on Fannie 4.0s are currently down 21 ticks on the day (compared to 3 ticks in the table below) to 102-12. 10yr yields were as high as 2.866. There is no economic data or headline news driving the losses. That's frustrating, but it happens frequently. Sometimes, all it takes is one big trade bold enough to step out from the herd and
the rest of the herd follows quickly. Dominoes and snowballs are other
analogies that work, but this is what happens when tensions are high,
markets are tentative, and traders are resigned to watching other trades for cues into a decreasingly liquid Friday afternoon.
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 11:01 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
ECON: Consumer Sentiment Much Weaker Than Expected
- Sentiment 80.0 vs 85.5 Forecast
- Current Conditions 91 vs 98
- Expectations 72.9 vs 76.0
- 12-mo Outlook 92 vs 104
- Sentiment and Expectations Lowest Since April
Market Reaction: a few ticks of positivity at first, and we're far from finding out where the day will end, but so far, markets are trading it like it's not quite enough weakness to suggest pushing back QE tapering expectations--especially from a report with no employment metrics. That said, we're not losing ground either.
(Reuters) - U.S. consumers, bracing for higher interest rates and slightly slower economic growth, were a bit less optimistic in August as sentiment retreated from last month's six-year high, a survey released on Friday showed.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment slipped to 80.0 from 85.1 in July, the highest since July 2007.
August's result was well below the 85.5 reading expected by economists.
Consumers' view of current economic conditions showed the biggest decline, and most expected the pace of growth to ease slightly. However, these changes were not large enough to upend "the prevailing view that the economic expansion will continue," survey director Richard Curtin said in a statement.
"Perhaps the most important recent changes have been the increase in home values as well as the jump in the numbers that expect interest rate increases during the year ahead," he added.
Long-term interest rates have risen by more than a full percentage point over the last three months on the view that the Federal Reserve will start scaling back as soon as next month its hefty support for the economy.
That has pushed up mortgage rates, which could sap some of the strength from a housing recovery that has been pushing prices higher for more than a year.
Housing Starts Reinforces Range-Bound Trend; Waiting on Sentiment
The general level of indecision is palpable in bond markets--assuming you take yesterday's decision to head into newer, significantly weaker territory 'as read.' Treasury yields rose from the mid 2.76's to 2.80 in the overnight session, but were very clear in their resolve to go no higher. As they recovered into European hours, they were also very clear to go no lower than mid 2.76's, even though German Bunds were suggesting a bit more positivity.
Yields rose again into domestic hours ahead of the Housing Starts data, but AGAIN went no higher than overnight highs. Following the lukewarm data, they've been moving gradually back down to the other side of the overnight range. At this point it's either tradeflows at the 9:30am stock open or the 9:55am Consumer Sentiment data that will cast the vote on this micro-range (though even if stocks do it at 9:30, Sentiment still has the option to do it at 9:55).
MBS began the day in slightly weaker territory and, like Treasuries, have moved back close to unchanged levels. Again, the indecision is palpable. The choice is whether or not to hold the range ahead of next week's FOMC Minutes. The answer is very likely "yes" unless data clearly suggests another acceleration in the weakness. To be clear, "the range" is the upwardly sloped, but still slightly sideways medium term trend channel in 10yr yields seen in this morning's Day Ahead
ECON: Productivity/Costs Slightly Higher Than Expected
- Productivity +0.9 vs 0.6 forecast
- Labor Costs +1.4 vs +1.2 forecast
- Market Reaction: None. Not a market mover, but it's "scheduled economic data," so here it is:
Nonfarm business sector labor productivity increased at a 0.9 percent
annual rate during the second quarter of 2013, the U.S. Bureau of Labor
Statistics reported today. The increase in productivity reflects increases
of 2.6 percent in output and 1.7 percent in hours worked. (All quarterly
percent changes in this release are seasonally adjusted annual rates.)
From the second quarter of 2012 to the second quarter of 2013,
productivity was unchanged as output and hours worked both increased 1.8
Labor productivity, or output per hour, is calculated by dividing an index
of real output by an index of hours worked of all persons, including
employees, proprietors, and unpaid family workers.
Unit labor costs in nonfarm businesses increased 1.4 percent in the second
quarter of 2013, the combined effect of a 2.3 percent increase in hourly
compensation and the 0.9 percent increase in productivity. Over the last
four quarters hourly compensation and unit labor costs both increased 1.6
BLS defines unit labor costs as the ratio of hourly compensation to labor
productivity; increases in hourly compensation tend to increase unit labor
costs and increases in output per hour tend to reduce them.
ECON: Housing Starts Slightly Lower Than Forecast; Single Family Lags
- Starts 896k vs 900k Forecast
- Permits 943k vs 945k Forecast
- Single Fam Starts 591k vs 604k previously
- Multi Fam 305k vs 242k
Market Reaction: A few ticks of improvement but no sustained momentum.
Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 943,000. This is 2.7
percent (±0.8%) above the revised June rate of 918,000 and is 12.4 percent (±1.3%) above the July 2012 estimate of 839,000.
Single-family authorizations in July were at a rate of 613,000; this is 1.9 percent (±0.9%) below the revised June figure of 625,000.
Authorizations of units in buildings with five units or more were at a rate of 303,000 in July.
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 896,000. This is 5.9 percent (±14.5%)* above the
revised June estimate of 846,000 and is 20.9 percent (±12.9%) above the July 2012 rate of 741,000.
Single-family housing starts in July were at a rate of 591,000; this is 2.2 percent (±9.7%)* below the revised June figure of 604,000.
The July rate for units in buildings with five units or more was 290,000.
Single-family housing completions in July were at a rate of 571,000; this is 5.9 percent (±10.2%)* above the revised June rate of
539,000. The July rate for units in buildings with five units or more was 195,000.
Live Chat Featured Comments
Brent Borcherding : "I'm not a Fed apologist, but I have to wonder where we'd be without it. I think many of us fail to recognize how awful this situation was, and there is a chance that QE and where we are today has just set the foundation for the real recovery. I know we'd like to see a real recovery at this point, but the Bernak said years ago the recovery wasn't going to feel like a recovery due the the severity of the crisis."
John Rodgers : "How easy we forget how much of a wildcard the Federal Reserve is. I wouldn’t put it past them to change the entire statement next month making the May taper talk the biggest head fake in financial history. By in large the discussion has been taper vs. not taper or prolong the taper to Q1 ’14. I wouldn’t be shocked if the Fed changed their direction either way nor would I be surprised if they go an entirely different route. Perhaps one that looks more like QE1 then its current form. The herd is s"
Mark Gordon : "But nothing?"
Scott Valins : "lowest since April - April was three readings ago"
Brent Borcherding : "'Cause the market is broken and it's just trading the end of QE, for now."
Oliver Orlicki : "big miss and no reaction at all...jobs jobs jobs"
Mark Gordon : "Why aren't we getting any boost from this?"
Matthew Graham : "RTRS- THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIMINARY AUG 91.0 (CONSENSUS 98.0) VS FINAL JULY 98.6 "
Matthew Graham : "RTRS- THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT PRELIMINARY AUGUST 80.0 (CONSENSUS 85.5) VS FINAL JULY 85.1 "
Hugh W. Page : "JT, you may be right. It worries me as well. I just want a return to a "normal" market, one which may not happen the rest of my career unfortunately. It starts with a solid economy and jobs to build a foundation for the future. Unfortunately, we've built up over time a system where excess leverage for buyers is the foundation. It's helped my paycheck over the years but I'm not so sure it's helped our economy"
John Tassios : "That was my point earlier Hugh, investor cash on sidelines not going to stocks or bonds, but investors paying cash and buying SFR houses or buidling multi-fam housing for rentors. The thing that worries me is the fundamental building block for housing, the "1st time homebuyer" is very low. Having investors this much into housing owners instead of OO ownership is going to come back to bite us in the future, esp with valuations from appraisals going forward."
Hugh W. Page : "And that article about percentage of cash deals is no surprise to us in FL. Palm Beach County has been at 60% cash deals for quite awhile and it's much higher than that in some areas. The number of contracts I see where the seller is some Investment LLC is very high also. Either that or it's Fannie or a bank on the seller side :) Not a normal market for sure."
Hugh W. Page : "I get all the news I need and want right here on MBS Live plus I get to commiserate with folks in the real world who know and see what's really going on ."
John Tassios : "looks like investor demand still high for multi family but the starter homes, 1st time homebuyers is falling pretty big due to higher rates"
Matthew Graham : "RTRS- US JULY TOTAL HOUSES UNDER CONSTRUCTION HIGHEST SINCE MAY 2009 "
Matthew Graham : "RTRS - US JULY SINGLE-FAMILY STARTS -2.2 PCT TO 591,000 UNIT RATE, LOWEST SINCE NOVEMBER; MULTIFAMILY +26.6 PCT TO 305,000 UNIT RATE "
Matthew Graham : "RTRS - US JULY HOUSING PERMITS 943,000 UNIT RATE (CONSENSUS 945,000) VS JUNE 918,000 RATE "
Matthew Graham : "RTRS- US JULY HOUSING STARTS 896,000 UNIT RATE (CONSENSUS 900,000) VS JUNE 846,000 (PREV 836,000) "
Matthew Graham : "RTRS - US JULY HOUSING STARTS +5.9 PCT VS JUNE -7.9 PCT (PREV -9.9 PCT) "
Christopher Stevens : "WSJ Article: The Federal Reserve could hedge its bets by making small moves rather than large, aggressive ones when it starts pulling back on its $85 billion-a-month bond-buying program, said James Bullard, president of the Federal Reserve Bank of St. Louis.
Mr. Bullard, in a press briefing Thursday, said he hasn't decided whether the Fed should begin pulling back in September, as many market participants increasingly expect.
But his comments were notable because they were the first by a centr"