It's been an interesting morning so far for bond markets, even if it's ultimately to be inconsequential. Indeed, the message is being sent that market participants are only as present as they must be on the last week of summer. This continues to cause liquidity problems. That means that if bond market is like a swap meet at the convention center and various price/yield levels are like kiosks, attendees are spread throughout the building fairly evenly without any one kiosk drawing a big crowd.
That makes it harder for folks to transact the business they'd like at the prices they like. They might get a little antsy the longer they have to wait, and if it looks like there's a decent enough deal at a nearby kiosk with a similar enough product, they might just spend their whole $35 gift certificate right there, even if it wasn't in line with their original goals.
These are the underpinnings of mini-snowballs of buying or selling in markets. If not much buying or selling is going on where you are, and you see a noticeable uptick in buying or selling near enough to your own position, you're more likely to jump on that bandwagon.
Such a bandwagon helped bond markets recover quickly this morning after trading into weaker territory on the stronger-than-expected GDP data. Explanations for the initial impetus range from more moderate Syria headlines to technical support levels. Causality doesn't really matter here though. The liquidity problems mean the herd goes where the herd goes--and fairly quickly to boot. From the post-GDP high yields to the 10:30am lows, we have a range trade for the day that is completely excused from rhyme or reason, though we're currently nearer to the better levels of the day for bond markets.
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
In Better Territory; Need More Improvement for Broad-Based Reprice Potential
MBS are on the edge of justifying positive reprices as bond markets continue to push back against the initial weaker response to this morning's stronger data. 10's just hit their low yields of the morning and Fannie 4.0s are only 1 tick from positive territory. Even holding here will be good enough for a few of the early priced lenders to consider a reprice. The longer that continues or is improved upon, the wider the doors open for other lenders to get on board.
Improvements are currently contending with resistance at overnight lows in Treasuries. In other words, while yields are at their lowest levels of the domestic session, they're only *in line* with the lowest levels from European hours. Looks like we're breaking those now...
Last caveat: keep an eye on rate sheet print times. Some lenders will have based sheets off prices that had already rallied. They'd be slower to reprice, naturally, if at all.
Bond Markets Holding Ground Just Inside Weakest Levels
This is one of those less-than-common situations where the proverbial bull just ran through the china shop without the typical effect. Plates may be teetering on their stands and a few may have been broken, but most of the inventory remains intact.
In other words, we had bullish data invade a space that is predisposed to being damaged by bullish data recently. But the damage has been minimal so far. Even if we can't be sure we've seen the worst of it yet, we're getting a good bounce so far on our second approach to the weakest levels of the morning.
10yr yields, for instance, came into the domestic session just under 3bps higher after a relatively uneventful overnight session. They moved up to 2.83 immediately following the GDP and Jobless Claims data, but are now back down to 2.81.
MBS similarly opened up slightly weaker than yesterday's latest levels with Fannie 4.0s at 103-00 ahead of the day and falling to 102-24 after the data. They're now back up to 102-28.
The move back in the other direction hasn't been swift, but the defense of the weaker levels (determination of Treasury yields to hold under the ceiling at the highs or of MBS Prices to hold above a floor at the lows) has been reasonably strong. It's not safe to assume we won't revisit the weakest levels, but at least we're in a position to consider that it might not happen (as opposed to simply watching prices fall lower and lower).
There are no other significant economic reports this morning though the last of the week's Treasury auctions will hit at 1pm. Bond markets may be slightly hesitant ahead of the auction, but may express some "relief bid" afterward (this refers to the 3-day cycle of Treasury auctions where investors know they'll be bidding on a set amount of Treasuries but not exactly how that bidding will go. This can keep purse strings just slightly tighter until the auction cycle is successfully completed, and slightly looser afterward).
ECON: Jobless Claims Slightly Lower Than Expected
- Claims 331k vs 332k forecast, 337k previously
- Continued Claims 2.989 mln vs 2.980 mln forecast
- Market Reaction: this is one of the most "as-expected" Jobless Claims reports in recent memory, with only a 1k deviation from consensus and a 1k revision to the previous month. GDP data is therefore credited with having a bigger impact at 8:30am.
In the week ending August 24, the advance figure for seasonally adjusted initial claims was 331,000, a decrease of 6,000 from the previous week's revised figure of 337,000. The 4-week moving average was 331,250, an increase of 750 from the previous week's unrevised average of 330,500.
The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending August 17, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending August 17 was 2,989,000, a decrease of 14,000 from the preceding week's revised level of 3,003,000. The 4-week moving average was 2,996,250, an increase of 9,500 from the preceding week's revised average of 2,986,750.
ECON: GDP Stronger Than Expected
- GDP +2.5 vs +2.2 forecast, +1.7 previously
- Deflator and PCE Prices (inflation metrics) unchanged
- Exports +8.6, most since Q2 2010
- Market Reaction: While stronger than expected, this was within the range of estimates, even if on the higher end. Bond markets have weakened, but are already showing signs of support after only moderate losses.
Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- increased at an annual rate of 2.5 percent in the second quarter of 2013
(that is, from the first quarter to the second quarter), according to the "second" estimate released by the
Bureau of Economic Analysis. In the first quarter, real GDP increased 1.1 percent.
The GDP estimate released today is based on more complete source data than were available for
the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 1.7
percent. With this second estimate for the second quarter, the increase in exports was larger than
previously estimated, and the increase in imports was smaller than previously estimated
The increase in real GDP in the second quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed
investment, and residential fixed investment that were partly offset by a negative contribution from
federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the second quarter primarily reflected upturns in exports and in
nonresidential fixed investment and a smaller decrease in federal government spending that were partly
offset by an acceleration in imports and decelerations in private inventory investment and in PCE.
Bond Markets Weaker After AM Data
Both GDP and Jobless Claims were stronger than expected. 10yr yields are up to 2.83 and Fannie 4.0s are down 13 ticks at 102-23. More to follow...
Live Chat Featured Comments
Tim Y : "REPRICE: 11:00 AM - NYCB Better"
Eric Franson : "REPRICE: 10:47 AM - Wells Fargo Better"
Tim Y : "one does not simply look away from the mbs chart..."
Matthew Carver : "http://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf"
Ted Rood : "No one look directly at MBS chart, don't want to spook it."
joon choi : "no, we as LO are not a credti reporting agency"
Matthew Carver : "that's a regulation. you can provide the credit score disclosure, but not the report"
Charles Tadros : "Quick question on compliance...are LO's allowed to give clients copy of credit reports?? I recall that we should not...anyone know for sure?"
Matthew Graham : "MG2, off the top of my head, I'm not sure. I can do some more digging later (unless someone else can right now, or already knows), but my best guess is that the LFPR is a factor of what survey respondents *SAY* they're doing with respect to their job prospects whereas Claims are something they actually file. Of course there is "benefit exhaustion" where they no longer qualify to claim unemployment, but this would only correlate to NFP if the decision to say "I've given up looking for work and "
Michael Gillani : "Hey MG, quick question: would the fact that people are leaving the labor force and the participation rate is shrinking have a direct effect on the weekly jobless claims? I would imagine so but wasn't sure."
Ted Rood : "Assume MLS won't ever reflect foreclosures bought at initial auction."
Ted Rood : "even Marketwatch story said Realty Trak was 40, Goldman said 57."
Victor Burek : "maybe some that are bought cash are not listed on mls"
Ira Selwin : "and another said 60%"
Matthew Graham : "What's the real number I wonder, and why the discrepancy? NAR says 31 pct just last week. http://www.mortgagenewsdaily.com/08212013_existing_home_sales.asp"
Ted Rood : "Gotta love this news: http://www.marketwatch.com/story/nearly-half-of-all-homes-are-purchased-in-cash-2013-08-29"
Jason Anker : "The float lock convo always cracks me up. Sounds like many make the float decision on their own when regulators tell us it’s the borrowers call and we must follow their lead, right. "
Thomas Nelson : "In this market of very shaky appraisals, it's not always a given in certain areas that the refi at a lower rate will always be there."
Ted Rood : "Exactly. Have a few shoppers who are still at 6% because they REALLY wanted no cost loan at 3.25%, would just rather wait for something they will never get and waste money daily in the meantime."
Jeff Kalb : "It's almost irresponsible to ever float on a purchase unless you're dealing with a builder who is notorious for delays, then you may not have a choice until you get the 30 day letter. Even then I go with 45 days."
Jeff Kalb : "CS, true yet as you said if the strategy was to lock all loans at application you wouldn't have to worry about locking floaters. Since I don't make anymore regardless if rates go up or down, I do my best to lock all loans on application. If the borrower is happy with your original quote, the drama stops there. If the market is in a free fall then yes, floating is an option to be competitive when the borrower is shopping heavily. When was the last time we were that market, February? "
Christopher Stevens : "JK- if the strategy was to lock all loans at application you wouldn't have to worry about locking floaters on dips. The issue now is some floaters got caught in the sharp rise and the last few days gave them ample opportunity to pull the trigger and save themselves. Going into NFP you should lock up the pipeline. After NFP depending on market movement there may be an opportunity to float again at application and catch some dips in the next 60 days but that is pure speculation at this point."
Jeff Kalb : "Isn't that pretty much the strategy all the time???"
Matt Hodges : "btwn now and NFP, i think that's a solid strategy"
Christopher Stevens : "the mantra at my company right now is lock any floaters on dips and lock new loans at application. Just too risky not to lock. Can always reno if rtes drop. "
Christopher Stevens : "range is the range is the range until 9/6 NFP"
John Tassios : "Bullard speak won't make a difference today, too far down the taper road to turn back no matter what Bullard says"
Victor Burek : "bullard speaks soon, maybe he can reverse things for us"
Matthew Graham : "pretty tentative sell-off for 2.5. "
Matthew Graham : "RTRS- US CONTINUED CLAIMS FELL TO 2.989 MLN (CONS. 2.980 MLN) AUG 17 WEEK FROM 3.003 MLN PRIOR WEEK (PREV 2.999 MLN) "
Matthew Graham : "RTRS- US JOBLESS CLAIMS FELL TO 331,000 AUG 24 WEEK (CONSENSUS 332,000) FROM 337,000 PRIOR WEEK (PREVIOUS 336,000) "
Matthew Graham : "RTRS - US Q2 EXPORTS +8.6 PCT, LARGEST RISE SINCE Q4 2010 (PREV +5.4 PCT); IMPORTS +7.0 PCT (PREV +9.5 PCT) "
Matthew Graham : "RTRS- US Q2 CONSUMER SPENDING +1.8 PCT (PREV +1.8 PCT); DURABLES +6.1 PCT (PREV +6.5 PCT) "
Matthew Graham : "RTRS- US Q2 PCE PRICE INDEX UNCHANGED (CONS UNCHANGED), PREV UNCHANGED; CORE PCE +0.8 PCT (CONS +0.8 PCT), PREV +0.8 PCT "
Matthew Graham : "RTRS- US PRELIM Q2 GDP +2.5 PCT (CONSENSUS +2.2 PCT), PREV +1.7 PCT; FINAL SALES +1.9 PCT (CONS +1.7 PCT), PREV +1.3 PCT "
Andy Pada : "exports"
Scott Valins : "gm all... can't recall why GDP is expected to be adjusted upwards. "