Of all the times that a government shutdown could take the monthly jobs report offline, this week may have been one of most challenging to deal with as far as traders are concerned. That has to do with the Fed's decision to hold off on tapering at the last meeting. If we had to pick one single culprit for the absence of tapering, it would be the August jobs report that came out on September 6th. It suggested a "wait and see approach" that ultimately led the Fed itself to do just that.
From that point on, all of the arguments about the Fed being determined, for some reason, to taper regardless of the data, were out the window. It reiterated that the withdrawal of QE was indeed data dependent--not some weird ulterior motive (like "Bernanke wants to be done with QE before he retires," which credible news organizations actually suggested). The Employment Situation report is always important, but tomorrow's was to be extra important as a bounce back in a stronger direction might have increased speculation that tapering was still on the table for 2013.
But the shutdown has now officially swallowed up NFP--at least in its normal time slot--and is already hampering data collection efforts for the next report. Because of that, tomorrow's report was the only chance to get an unadulterated read of the data (because there was normal data collection in September). While we still may get September's numbers next week or the week after, we know we aren't getting them tomorrow, and the trauma associated with that fact is evident in the extraordinarily flat trading overall for the entire week.
The desperate search for data is also evident in the fact that we've managed to have seemingly big reactions to ADP and ISM Non-manufacturing data, only to return to the same old levels by the afternoons.
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 4:07 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
Rally May be Turning; Reprice Risk Shifting
We're in a bit of a precarious position at the moment, where the last of the preexisting positive reprice potential is probably drying up and for some lenders, may already be shifting to negative reprice risk. (One negative reprice was already reported, but by a lender that tends to reprice worse when they've had their fill of locks for the day).
Fannie 3.5's are 7 ticks off their highs, but still 5 ticks higher on the day. More telling is the breakdown of support in Treasuries. 10's had been holding a ceiling just under 2.61 and that's now been broken. MBS may follow with their own break of 101-30 in Fannie 3.5s.
If they don't, reprice risk would remain mixed, and moderately skewed toward negative reprices for lenders that had repriced positively earlier (but some lenders who never repriced could still reprice for the better). If MBS do break lower, negative reprices would be increasingly likely for any rate sheet printed after 11am.
Rally Mode Engaged; MBS hit Fresh 3-month Highs
We have a couple things going on at the moment. The most significant event of the day has been a resoundingly weak ISM Non-Manufacturing report. The other overt and more recent factor has been a series of comments from Fed's Williams that tie Fiscal uncertainty to tapering prospects.
The less quantifiable forces involve an ongoing slide in market sentiment surrounding the government shutdown combined with a planned slide in market sentiment surrounding the change over from the second the third quarter.
Planned slide? All that means is that stocks were the market's darling in the 2nd quarter. The asset allocation among managed funds shifted heavily out of bonds and into stocks. Regardless of all the political drama and economic data, there's a natural impetus to exhale after inhaling. There's a natural consolidation in markets after faster-paced movement. The dramatic events simply confirm that it makes sense to take this breath now.
That's more of a broad theme, however, and we only discuss it to offer an explanation for stocks and bond yields moving in the same direction again (after months of moving in the opposite direction for the "QE on/off" trade). More pressing at the moment are the solid gains in MBS.
Fannie 3.5s are up 10 ticks now at 102-03. Several lenders who priced early in the session have already repriced positively and others will likely begin joining them at these levels, assuming they hold or are improved upon.
Live Chat Featured Comments
Victor Burek : "it does appear that news is causing the losses here"
Victor Burek : "House Speaker John Boehner has told colleagues he's determined to prevent a federal default and is willing to pass a bill raising the debt limit with both Republican and Democratic votes, the New York Times is reporting. A House Republican who didn't want to be named told the Times that Boehner indicated he is willing to violate the so-called Hastert rule if necessary. That rule refers to a policy of not bringing to the House floor a bill that doesn't have a majority of Republican votes. The Tre"