Coming out of last week's FOMC Announcement, it seemed almost too simple to conclude that this it marked a solid opportunity for rates to stop climbing and potentially recover a bit. If the Fed was as close to tapering as markets believed based on surveys, etc., it's reasonable to conclude they were close.
From there, another simple conclusion flows naturally: if the upcoming economic data is generally improving and beating expectations then tapering will be back on the table. But if the data is doing anything else, the taper timeline remains in doubt. To reiterate a point that's already been made here and elsewhere, it's not so much about the dollar amounts that will be announced, but rather the overall pace of the Fed's egress. Their abstention showed they were willing to lengthen the process past the "mid 2014" previously discussed as an "all out" deadline. It's that lengthening time frame that's more soothing than the mere absence of tapering in the most recent meeting (we very well could have rallied the same amount if the Fed only tapered, say, $5 bln / mo).
So when today's data came in as-expected with fairly week internals in Durable Goods and lackluster long-term stats for New Home Sales, bond markets had no reason to change their recent tune. Nothing seen here today suggests anything different is happening than that which first led the Fed to hold off on tapering. That said, these aren't necessarily the reports that will have the most to say about that, but the point is the burden of proof is on the data to refute the lack of tapering. So far it hasn't, so we continue to rally cautiously.
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
MBS at Best Levels; Positive Reprice Potential Increasing
After a lackluster 5yr auction, bond markets were able to hold their ground relatively well, bolstered initially by news that the Senate had enough votes to pass a stop-gap funding bills to avoid a government shut-down.
The second leg of support comes after a Bloomberg report on Walmart cutting orders from suppliers due to an inventory pile-up. Although equities markets have been hardest hit by the news, Treasuries and MBS are gleaning some tangential benefit.
Fannie 3.5s are now up 10 ticks on the day at 101-20 and Fannie 4.0s are up 6 ticks at 104-21. There is some positive reprice potential while we remain near these levels. 10yr yields are down 2.5bps on the day to 2.63.
Live Chat Featured Comments
Matt Hodges : "if you are a correspondent, factor in additional time, as it typically is from purchase date NOT close date, unlike broker deals"
Matt Hodges : "MG - Sung may be helping clients as we speak... EPO refers to Early Payoff, as in EPO penalty that most, if not all lenders place on loans that pay off in 4-6 months from purchase"
Ted Rood : "Regarding EPO's, think we have a long way to go before folks that locked in July (and closed in August) start feeling the urge to refinance again."
Matthew Graham : "3pm Treasury close JA. That's not to say there wasn't a discreet cause and effect, but it's not uncommon to see a pick up in volume and volatility heading into and out of 3pm."
Matthew Graham : "Sung, can you expand on your very valid EPO comment, because I'm guessing half of us understand and are right there with you and the other half would just like to see a crappy jobs report."
Jeff Anderson : "Was there news a few mins ago or just getting through a technical level? What are we looking at for future pivots on the way down on the 10 yr, MG?"
Scott Valins : "wow another new daily high"
Sung Kim : "problem is EPO period"
Bert Swyers : "agreed Gus, we need a crappy NFP"
Gus Floropoulos : "we would need weak data, especially jobs# and gdp"
Sung Kim : "i am in Justin's camp, just not 2 weeks, a bit longer"
Gus Floropoulos : "Fed's taper talk has done its job shifting momentum"
Tim Y : "it would be tough, 10 year has a way to go, could see it if fed says they are going to shift some bond purchases to mbs purchase and continue not to taper though."
Gus Floropoulos : "dont see it in the cards yet"
Gus Floropoulos : "sub 4% would take quite a bit of a rally"
Matt Hodges : "Justin, many read the comments literally... would you like to expand on your sub 4% prediction?"
Justin Harward : "We've finally broken out of the 4.5% 30 year fixed rate bottom. If this continues we could be sub 4% within 2 weeks"
Eric Franson : "REPRICE: 1:47 PM - Wells Fargo Better"
Victor Burek : "http://www.bloomberg.com/news/2013-09-25/wal-mart-cutting-orders-as-unsold-merchandise-piles-up.html"
Victor Burek : "headline on Bloomberg..Walmart cutting orders as unsold merchandise piles up in U.S"
Matthew Graham : "RTRS- US SENATE CASTS FIRST PROCEDURAL VOTE IN FAVOR OF BILL TO KEEP GOVERNMENT OPERATING BEYOND SEPT. 30; DEBATE CONTINUES "