Bond markets started the day in slightly stronger territory though remained in line with Friday's latest levels. Overnight events were supportive for Treasuries, including political drama at home and abroad (more details in the 9:13am Alert below). 10yr Treasury yields already were already bouncing off overnight lows just before 8am, but a reversal in the Italy-inspired flight to safety sent small shockwaves through European bond markets, further applying pressure to Treasuries.
The net effect was a bond market that was stronger at 8am, then weak enough by 10:30am to necessitate an early reprice risk. Several lenders repriced worse and now the weakness has ebbed and prices are back in line with Friday's latest levels. Bottom line, the volatility was noticeable but moderate.
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
Some Lenders Already Face Reprice Risk; Others Just Out with First Sheets
It's early enough in the morning that some lenders are just now coming out with their first rate sheets of the day, but for those out earlier in the morning, there's already a slight increase in negative reprice risk.
There was a good amount of time spent with Fannie 3.5s near 101-26--and that time can coincide with several lenders' initial rate sheet print times. While the volatility may have kept them more defensive, prices are down more than an eighth of a point, meaning that negative reprices can't be ruled out.
That said, we're not staring down the slope of an epic sell-off just yet. Fannie 3.5s are down only 3 ticks on the day and 10yr yields are attempting to bounce at 2.64.
ECON: Chicago PMI Slight Stronger Than Expected, but Employment Falls
- Purchasing Management Index 55.7 vs 54.0 forecast
- Prices Paid 57.1 vs 65.2 previously
- Employment Index 53.2 vs 54.9 previously
- PMI highest since May
- Market Reaction: with stocks already at relatively depressed levels on the day and bond markets having just sold off a bit, we've actually been able to bounce to the upside (in price), likely owing to the weaker-than-previous "employment' component of the index.
Business BarometerTM gained 2.7 points in September to 55.7.
The Barometer has gained in each of the past three months, the longest run of monthly increases for more than three years. Activity has recovered from April’s three year low of 49.0, although is still only consistent with modest economic growth.
Gains in September Production levels, while healthy, followed a three month slide. New Orders were up for the second consecutive month to the highest level since February. Supplier Deliveries lengthened in September to their highest level since March.
Order Backlogs rose marginally from August, but remained below the breakeven 50 level for the fourth month in a row.
Employment softened for the third consecutive month and was the only barometer component to fall in September.
Bond Markets Give up Gains After Overnight Flight-to-Safety
Asian equities markets were hit hard at the beginning of the overnight session and bond markets rallied as prospects for a government shutdown in the US grew increasingly likely. The House sent a stop-gap funding bill to the Senate, but it includes provisions to delay the affordable care act for 1 year, thus making passage unlikely.
Although Asian stocks bounced higher several hours into the session, US Treasury yields and equities futures stayed lower until the European hours. At that point, there was a moderate push higher/weaker in Treasuries, but all told, the move was from 2.595% in 10yr yields to 2.623%. Bonds bounce back lower in yield as the domestic session approached.
Italian political drama has been more of a factor this morning than the domestic variety and most recently, a bounce lower in Italian yields has resulted in German and US yields snapping back above overnight highs shortly into the US session. Germany is obviously leading the way higher (in yield) for Treasuries at the moment.
10's just hit unchanged levels at 2.6281 and Fannie 3.5 MBS are now a tick worse at 101-23. They had been 7 ticks higher than that at 101-30 at the open.
European headlines may continue to occupy the driver's seat until Chicago PMI at 9:45am. The door remains exceedingly open for domestic political headlines as well, though the Senate isn't scheduled to return to session until 2pm Eastern.
Live Chat Featured Comments
Hugh W. Page : "Government is so much more dysfunctional now then it was in 1996 so it's hard to gauge what the impact will be of a shutdown. I think any shutdown longer than a few days could be a big problem but it's certainly hard to judge..."
David Rudnick : " AG, sounds possible but unlikely....the state and loan size play a huge factor"
John Rodgers : "in 1996 the governement shut down for three weeks. "
Amitab Mukerjee : "bad"
David Rudnick : "govt shutdown good or bad for rates and stock market.... whats the consensus "
Andy Pada : "there are groups out there paying 1.25 for MSRs. If you could originate at a zero cost and pick up the MSR, that is the play."
John McClellan : "one of my clients today was quoted 3.875% on a 30 year with one point...anyone seeing that..."
Andrew Benson : "It's amazing how many places I run into just interviewing people that are still out violating though. Talked to one last week -- a broker shop -- where the LOs were required to charge a certain amount of fee, and depending on their total fee income, they got varying levels of pay. "