Though somewhat of a hollow victory, bond markets improved after today's strong 30yr bond auction. It was hollow in the sense that the gains merely got MBS back to unchanged levels. 10yr Treasuries couldn't manage that, running into resistance well above yesterday's high yields. In other words, we had a nice afternoon rally, but it didn't result in any gains. The risk is that it confirms a recently troubling drift into weaker territory, though we're close enough to unchanged to have some doubt. 2.67 is now the resistance level through which 10yr yields would need to trade in order to suggest recent weakness has been a false alarm.
Much remains up in the air with respect to the government shutdown. A veritable boatload of headlines today indicated a stop-gap deal could be worked out as early as next week. If that brings economic data back online, the September jobs report should follow shortly thereafter and that would still be a bigger consideration for bond markets than any of the fiscal drama.
MBS Pricing Snapshot
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Pricing as of 4:09 PM EST
Afternoon Reprice Alerts and Updates
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Strong 30yr Bond Auction; First Move is Higher for MBS, but Met by Resistance
The 30yr Bond auction came in at 3.758 vs 3.782 expectations. Demand was 2.64 dollars bid for each dollar offered. That figure has recently been as low as 2.11 and several recent auctions have been in the 2.2-2.5 range. Bottom line, the results were strong.
The only possible counterpoint to the positivity is that bond markets have been selling off slowly since October 3rd, and more aggressively over the past few days. If these same auction results had arrived yesterday, they would have been negative for bond markets.
With that in mind, the reaction is logical so far. We've improved from where we were just before the auction, but haven't cracked into yesterday's trading ranges. Unfortunately, this may do more to confirm yesterday's weakness than to hearken a shift in momentum that takes us back into the range. For now, however, it's positive for prices, and if the post-auction gains hold current levels, positive reprices aren't out of the question.
Fannie 3.5s are currently down 6 ticks on the day, but up 4 ticks from pre-auction levels. 10yr yields fell 2 bps after the auction to 2.694 initially, but are back up to 2.703 currently, considering their next move.
Live Chat Featured Comments
Scott Valins : "I'm getting full review on a deal that is 75/90 and wondering if there's a way to get limited review findings"
Scott Valins : "Does DU typically require full review on any condo deals that are over 80 LTV/CLTV?"
Oliver Orlicki : "REPRICE: 2:25 PM - Sun West Mortgage Better"
Tom Schwab MLO-77107 : "REPRICE: 2:19 PM - Franklin American Better"
Jason York : "just got this from 5th 3rd - Loans underwritten via FHLMC/LP for government employees, where a valid Verbal VOE cannot be obtained, WILL NOT be able to close without this documentation."
Oliver Orlicki : "work with her...huh. Wonder if she doesn't pay by the 15th if she is subject to the late fee"
Jason York : "one of my previous customers just let me know that when she called to set up automatic draft with her lender, they told her that if she needed to delay her Nov payment, because of the furlough, then they would work with her, she works for the govt, and receives VA disability and retirement"
Oliver Orlicki : "seeing .5% off pricing from yesterday"
Oliver Orlicki : "where are our reprices? "
Rob Clark : "REPRICE: 1:12 PM - Provident Funding Better"
Matthew Graham : "does that make sense? We had a pretty determined move weaker overnight, and I've been saying it could be due to this very auction, so in that sense, the auction "should" be stronger than expected. If we'd gotten these results yesterday, they would have been awful."
Matthew Graham : "Can't give it an A+ considering the concession taken to achieve what are only 90th percentile results. Boo Ricky."