Bond markets traded reasonably well overnight, improving at first, but giving up ground as the domestic session got underway. By 8am, MBS and Treasuries were walking in the door almost perfectly in line with yesterday's latest levels. The first and only major piece of economic data--ADP Employment--was weaker than expected, showing 166k payrolls in September vs a forecast of 180k. Additionally, August's reading was revised lower to 159k from 176k initially. This wasn't a big enough miss to send bond markets off to the races, but certainly enough for a noticeable shot of positivity. This particular instance of the ADP numbers carries more weight than it otherwise might considering the potential absence of NFP on Friday.
The initial leg of the rally was short-lived, and although a second wave of buying swelled into the mid-morning hours, it too has been unable to challenge last week's best levels in Treasuries. Tradeflows have been influenced by heavy asset-allocation trading, making for unexpected gluts of correlated movement in stocks and bonds. Tradeflows and Technicals in general (traders and trading programs watching outright trading levels vs news and data) have been a bigger force for movement than usual for obvious reasons (know one really knows what the heck is going to happen over the next few days).
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
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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
MBS Hit Highs; Positive Reprice Potential
After running into resistance at first, Treasuries and MBS have extended their post-ADP gains this morning, bringing Fannie 3.5s to their best levels since June 19th. The improvement is moderate so far, being up just 2 ticks from previous highs. Similarly 10's worked their way down to 2.596 from previous lows of 2.603.
Short-covering (buying bonds to close out bets on higher rates), asset-allocation trading (changing balances between stocks and bonds), and tactical considerations surrounding the Fed's daily buyback have all helped Treasuries since 9:20am. Treasuries in turn, have helped MBS.
Current gains may be sufficient for some lenders to consider a positive reprice, though we'd note that it already looks like this leg of the rally has leveled-off.
Bond Markets Stronger After ADP Data; Flying Holding Pattern
Treasuries had a calm, positive overnight session, moving gently lower in yield throughout Asian market hours. Gains picked up initially into European hours, but snapped back modestly and quickly after news came out that Berlusconi's party would potentially back Letta in a confidence vote.
It's not really important to know who those people are, simply that when Berlusconi is playing nice with the other Italian politicians, it's net-negative for German Bunds and that US Treasuries get a bit of spillover selling in those instances. It wasn't much in this case, but enough to level-off the overnight rally.
The morning's big news (more so due to anticipation) was the ADP Employment data coming in at 166k vs 180k expectations. The previous report was revised lower to 159k from 176k. This was a frustratingly weak result in that it wasn't wholly conclusive evidence that labor market metrics are on the turn (something markets are considering after the past two NFP readings).
Had it been much weaker, bond markets may well have found reason to rally more profoundly, but for now have simply rallied nicely and leveled-off. Fannie 3.5s bounced right in line with Monday's highs and 10yr yields have yet to make it through Monday's lows.
ECON: ADP Employment Weaker Than Expected
- ADP Payrolls +166k vs +180k forecast
- Last month revist from 176k to 159k
- Market Reaction: Bond markets rallied immediately, but thus far it's been somewhat underwhelming.
Private sector employment increased by 166,000 jobs from August to September, according to the September ADP National Employment Report®. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by ADP®, a leading global provider of Human Capital Management (HCM) solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. August’s job gain was revised down from 176,000 to 159,000.
Live Chat Featured Comments
Jason York : "we just got a very similar notice that we will do the same with tax returns, w-2's, and a signed letter from the borrower, but no SE borrowers"
Matt Hodges : "Ted Rood
(10/1/13 3:21PM): We just got word that we will close and fund without executed 4506's IF we have copies of returns, letter from borrowers stating returns are true and filed, and proof that the amount due was paid IRS or refund shown on return was received. "
Sam Baugh : "just need a written VOE for W-2. and a CPA letter for self employed that the returns are correct. Self prepared not allowed will require tax transcripts"
Sam Baugh : "we received guidance that only our fannie and Freddie direct products don't require transcipts"
Scott Rieke : ". We will accept files that come in without Tax Transcripts. We still want the executed 4506T form from closing.
2. We will continue to purchase USDA, FHA, and VA loans in anticipation of them being insured at a later date.
3. We will accept loans without a Verbal VOE when the borrower is a federal government employee who has been furloughed at time of closing.
4. We will accept loans without SSN validation.
Once the government shutdown is lifted, we will resume our current requirements
Ira Selwin : "We have outlets that don't have the overlay - just as Gus mentioned."
Ira Selwin : "Some investors have the overlay requiring transcripts, some don't."
Scott Rieke : "BB&T is going without transcripts right now because of shutdown"
Jason Anker : "No I wont"
Drexel Hill Mortgage, Inc. : "JA you will need the transcripts"
Jason Anker : "13 Obtain a completed and signed Form 4506-T for all borrowers at or before closing. Form 4506 or Form 8821 may be used in lieu of Form 4506-T. Refer to the Fannie Mae Selling Guide for additional alternatives. "
Jason Anker : "DU says to obtain 4506 form - does not say to execute and provide transcripts"
Ira Selwin : "you still need a signed 4506"
Ira Selwin : "DU does not require "trsnacripts" if the borrower is salaried."
Alex Kulka : "I've never heard of closing without 4506 either"
Gus Floropoulos : "20% of my deals dont ask 4 them"
Steven M. Sims : "I've never seen a DU Finding not call out for transcripts"
Gus Floropoulos : "if DU doesnt ask 4 them we dont need them"
Jason Anker : "its not a fnma freddie req"
Steven M. Sims : "Gus, how can your bank waive a GSE requirement, those loans will be unsellable"
Gus Floropoulos : "my bank is waiving 4506's where they can"
Steven M. Sims : "Have we talked about how we are all dead in the water because tax transcripts are not available?"
Matthew Graham : "props to Matt Hodges! http://www.newsplex.com/home/headlines/Federal-Government-Shutdown-Impacts-Local-Housing-Market-226039491.html"
Victor Burek : "that quote was from July...so not new"
Victor Burek : "“The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said at a press conference in Frankfurt"
Matthew Graham : "I couldn't tell ya re: ECB. Sounds different, but maybe that's just bullish hope springing eternal"
Matthew Graham : "RTRS- DRAGHI - ECB EXPECTS KEY INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD "