Bond markets came into the session on a stronger note. They looked intent on bouncing back from yesterday's somewhat troubling weakness. Everything was going fine until the 11am hour. Stocks broke higher and volumes picked up as headlines crossed the wires indicating that House republicans had sent a debt-ceiling deal to the White House and were awaiting a response. From there on out, the momentum had shifted for bond markets.
The next hour and a half saw bond markets drift into weaker territory. The sharpest move lower came right as the meeting ended. Markets were apparently bracing for the impact of a potentially positive announcement, but the first post-meeting headline clearly indicated "no deal" today.
This was the only moment of reprieve in the afternoon, and it lasted nearly an hour, bringing MBS back into positive territory by 2pm. But the tenor of the "no deal" headlines was decidedly more cooperative than any we've seen so far. This glimmer of hope was sufficient to set the course for bond markets into the close with both production MBS and 10yr Treasuries ending the day in slightly weaker shape than yesterday.
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 4:05 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
Not Out of The Woods; Reprice Risk Lingers
The potential reversal to the sell-off is turning out to be nothing more than a bump in the road. While we're not yet back to the weakest levels of the afternoon, we're certainly not hurtling gleefully higher in price simply because the White House talks ended without a stop-gap budget deal.
Fannie 3.5s are back down near unchanged levels on the day (up 1 tick at 101-08, but down a quarter of a point from morning highs). Again, there's no dire implication here, but it does leave the door open for negative reprice risk, whereas there was a chance it would have been more firmly closed if the bounce back had more traction.
From here on out, it looks like the best-case scenario is a consolidative grind for bond markets into the close.
Inspiration for Selling Pressure Has Left The Building
The inspiration for the sell-off had been the consideration of a new debt-ceiling stop-gap bill, and republicans had been in closed door meetings at the White House. But as they're now leaving that "building" with no deal struck, so too is the inspiration.
It's a bit too soon to jump to conclusions about how the rest of the day will go, but not too soon to update you on the reversal of fortune for bond markets. The selling trends have been halted for now. 10's have paused near the 2.670 level and Fannie 3.5s are 4 ticks off their lows at 101-10.
Negative reprice risk could still be lingering, but is somewhat reduced for lenders that haven't pulled the trigger yet. Ultimately, we'd characterize what just happened as an end to the most sincere selling motivation, but not necessarily justification to head the other direction. It looks like market participants aren't quite sure either.
Starting to Slide a bit More; Negative Reprice Risk Increasing
It's been a while since we've seen some good, old-fashioned Friday afternoon "leakage" in MBS, but it looks like that may be on the docket for the 2nd half of the day. Fannie 3.5s are down another 2 ticks from the last reprice alert, increasing the chances that more than a just a few lenders are considering it. 10yr yields broke above the 2.671 level mentioned over the past few days as an important inflection point. That doesn't necessarily mean anything dire, but the pressure should be taken seriously. More reprices are probably on the way.
MBS Pull Back, Stocks Advance, as Debt-Ceiling Headlines Hit
After running all the way down to 2.645 this morning, 10yr yields popped quickly back up to 2.66 after headlines came across indicating House republicans were waiting on a response from the White House on that latest debt-limit stop-gap bill. Stocks experienced the move as a modest 4 point rise in S&P and MBS sold off roughly 4 ticks. None of these moves are epic, and non of them are showing any signs of follow-through yet, but the initial direction suggests the follow through could come if the White House 'doesn't reject' this offer.
Negative reprice risk is an outside possibility for some of the quicker-to-reprice type lenders. We also can't rule out potential follow through (of weakness) even before the White House responds. If we slip below current levels, reprice risk would become moderate (as opposed to current risks which are "light/modest"). All that having been said, know thy lender. Some have itchy trigger fingers on 4-5/32nds of weakness from rate sheet levels.
Live Chat Featured Comments
Matthew Graham : "technically, if any of the day's price action is low enough, it invalidates the confirmation. So from a purely technical standpoint, the signal is not confirmed."
Christopher Stevens : "and the window is still closed right MG"
Troy Evans : "They have been very firm in setting their "expectations" however...."
Troy Evans : "Wanted to give an update. My re-approval process with Provident Funding has gone very smoothly. I received conditional approval this morning, and to this point, they've not asked for any payment etc. (knock on wood)"
Andy Pada : "if hatch's takeaway is that POTUS wanted more taxes, we are in stalemate for quite a bit longer"
Brent Borcherding : "Assuming that's the case, right, MG...it ain't over, yet."
Matthew Graham : "Though I'm no fan of the shutdown, there is something to be said for doing this dance only once in October instead of do a much more unpleasant variation in November. "
Matthew Graham : "RTRS- U.S. SENATE REPUBLICANS CALL MEETING WITH OBAMA PRODUCTIVE, BUT SAY NO DEAL REACHED ON DEBT LIMIT, GOVT SHUTDOWN "
Scott Valins : "REPRICE: 1:37 PM - Cole Taylor Worse"
Christopher Stevens : "REPRICE: 1:29 PM - Flagstar Worse"
Nate Miller : "REPRICE: 1:23 PM - Caliber Funding Worse"
Rob Clark : "REPRICE: 1:19 PM - Provident Funding Worse"
Victor Burek : "keep in mind, we need a resolution and govt to open for rates to go lower...only way rates go lower is if we get poor econ data..not getting data with govt shut down"
Matthew Graham : "markets must be reading into the fact that they weren't flying through the air with a boot mark on their pants"
Matthew Graham : "RTRS - REPUBLICAN SENATORS SEEN LEAVING WHITE HOUSE AFTER MEETING WITH OBAMA ON DEBT CEILING, GOVERNMENT SHUTDOWN "
Justin Dudek : "on a Friday before holiday weekend, and with no resolution in sight this wouldn't seem like the standard move? "
Oliver Orlicki : "Was shaping up to be a nice friday"
Evan Putt : "whats the reason were heading down this afternoon? Debt talks?"