When the potential government shutdown became an increasing reality into late September, bond markets entered in to a narrow, sideways range. When the shutdown became a reality, that range really took shape, with 10yr yields holding relentlessly between 2.66 and 2.59. No closing yield between 9/25 and 10/9 broke outside this range. It took more disconcerting disruptions in the short term funding markets to push longer term yields higher, but after the debt deal, they quickly snapped back.
Before and during and after that range of uncertainty, we've maintained a focus on the Employment Situation Report (NFP) that was purported to be at risk well before the shutdown. NFP is by far and away the biggest piece of data informing bond market movements every month. We'd maintained that the shutdown is a distraction compared to the jobs report, or lack thereof. It was that "lack" that probably contributed most to the paralysis seen in the chart above, and it was only the unexpectedly sharp movement in short term debt markets that pulled us briefly out of the range.
Today's trading hints at a bullish bias, though levels returned in line with the range by the close. While it is possible that we eke out moderate improvements on Monday, it's likely that the next big move comes courtesy of Tuesday's NFP. After next week, there will be only two weeks until the next NFP, and one of those weeks contains the FOMC Announcement. The extent to which bonds do, in fact, react to this NFP will be very telling as to the risks and opportunities associated with the following weeks. Bottom line: our prospects for movement are increasing. 2.42 will come quickly if the data disappoints, but so would 2.75 if the data is strong.
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
Negative Reprice Risk Increasing Slightly
While we haven't yet seen enough losses to justify a negative reprice from most lenders, we're now on the edge of risky territory. From here, each new tick of weakness does more to ratchet up the risk. Beyond that, it's Friday afternoon on a week that's seen a strong rally. Not only are such afternoons well within their right to exhibit some "late day leakage," but lenders who've received as many locks as they'd like are more likely to think only once about a repricing.
Fannie 3.5s are 1 tick up on the day still at 101-30, but this is down from 102-06 earlier this morning. 10yr yields just broke their highs of the domestic session, moving up to 2.592. There's nothing drastic or dire going on here, to be sure (after all, 2.59 is the heretofore LOW end of the recent range), but from an intraday risk standpoint, we're towing the line.
On one final note, the presence of reprice risk is highly lender-dependent at the moment. If one of the earlier positive reprices was any indication, some lenders are well-insulated against the need to reprice and may in fact be looking for volume. Those who've kept pace with market movements are at more risk--especially if they have a history of pipeline control reprices or are in the "early-to-act" crowd.
Modest Pressure on MBS; Treasuries Holding Support
Fannie 3.5s are down a mere 4 ticks from rate sheet time and Treasuries are no weaker. As such, this is currently looking more like "MBS getting caught up" to the earlier Treasury weakness. We are not currently trending lower in price.
If anything, 2.59 has been a supportive ceiling for 10yr yields so far this morning, and that continues to be a good level to watch as a line in the sand that could signify increasing pressure if broken. We're at 2.587 at the moment (and for the record, we could probably forgive a small move into the low 2.59's. If there's follow-through selling on a technical break, it will be a faster paced move that ends up quickly going over 2.60).
Live Chat Featured Comments
Matthew Graham : "I guess it depends on what kind of originator you are AP. Some comp plans and business structures are too labyrinthine for me to make sense of, but in general, at the correspondent level, 4.25 is paying a bit over 2 points. How much of that an originator is away of, I don't know"
Andy Pada : "if 4.25% is best ex, what would an originator see as the premium? par?"
Victor Burek : "4.99, 5.99, etc.."
Matthew Graham : "yes, Suntrust definitely does"
Victor Burek : "flagstar used to offer .99"
Tim Y : "I have seen some banks offer 3.99"
Andy Pada : "e.g., 3.975%?"
Andy Pada : "does anyone offer rates that are not based on the 1/8ths?"
Rob Clark : "Sometimes they just don't make sense."
Rob Clark : "REPRICE: 11:36 AM - Provident Funding Better"