Bond markets were pushing the boundaries of their best recent levels this morning, and that trend continued after the ADP Employment report showed weaker than expected job creation in October and a negative revision to September's report. None of the morning's other data had much of an impact. From then on, markets geared up for the afternoon's FOMC Announcement.
The 7yr Note auction had almost no discernible impact on trading levels at 1pm, and prices were at 4+ month highs just before the Fed. When the announcement showed a less bearish take on the economy than many market participants may have been hoping for, trading levels quickly corrected back to the other side of the recent range. Both MBS and Treasuries found support in line with last Tuesday's latest levels (NFP day). Now, we wait to see if this turns out to be a supportive bounce tomorrow or merely a pit-stop before further selling.
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 4:03 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
Bleeding Stopped, Bond Markets Head out Close to Unchanged
There are a few candidates for supportive inflection points in Treasuries and MBS over the past few weeks. Those are big words that can be replaced with "ceiling" in the case of Treasury yields and "floor" in the case of MBS Prices, at least when we're talking about them being "supportive."
Both were established right after last Tuesday's NFP rally. Both were revisited today, and both held their ground fairly well. Sometimes bond markets do this because there's legitimate support that will continue to hold and other times, such levels simply represent the most logical place to end a short term movement before breaking through the barrier in the next session.
While we can't know how that will play out yet, we can observe that MBS stopped selling-off before breaking below recent lows, and are heading into the late hours just 2 ticks below "unchanged" on the day. This is still a significant drop from the +10 ticks in play before the FOMC Announcement, but in the bigger picture, not the end of the world.
10yr yields are back down to 2.527 after bouncing at 2.549 earlier (an important pivot point to watch heading into tomorrow).
MBS Back to 2-day lows; Negative Reprices Nearly Guaranteed
If you haven't seen a negative reprice yet, you probably will. Fannie 3.5s are now down 4 ticks on the day at 102-19. 10yr yields are up 3.2 bps at 2.5396.
This is a very abrupt move in the context of this week, but certainly isn't much to write home about in the bigger picture. Think of it like hitting the rumble strip on the Freeway. We were cruising along--sort of zoning out a bit, and this is a wake-up call that the Fed isn't quite as on board with the bearish reading of the market that might seem like common sense.
Curious Deletion in FOMC Announcement; May Be Behind Bond Market Weakness
"The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market."
" The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall."
The second entry is from today's announcement, effectively removing the warning that tighter financial conditions could slow the pace of improvement. Nowhere else in the statement is that warning rephrased or reiterated.
In and of itself, this is likely enough to justify a negative reaction in bond markets, but the Fed made a few other subtle changes--some of them also surprisingly positive. The most interesting among these was the characterization of the housing market as being in a "recovery" as opposed to merely strengthening last time. The Fed said that labor market indicators showed "further improvement whereas last time it was "some indicators."
There were bearish aspects too, but in general, markets look to have been holding out for something FAR more cautious than what we received. You can see all of the differences HERE
Negative Reprice Risk Increases Significantly; First Move After FOMC is DOWN
Fannie 3.5s down to 102-26 after earlier highs of 103-01. More to Follow...
MBS at Highs Ahead of Auction and FOMC Announcement
Bond markets were weaker into the 9am hour, but have been almost exclusively positive since then. The only pause in the morning's rally came courtesy of a block trade in Treasury futures at 10:30am. The momentary weakness was quickly scooped up by buyers, though volume remains light in advance of this afternoon's final Treasury auction and FOMC Announcement.
Fannie 3.5's are now up 9 ticks to their best levels of the day/week/month/quarter. 10yr yields are just above their overnight lows, currently 2.482 vs 2.478. Positive reprices aren't out of the question, but are by no means likely just yet (combination of prices not being quite high enough vs most lenders' rate sheet times and hesitation ahead of afternoon events).
Live Chat Featured Comments
Matthew Graham : "All of the differences between previous statement and today's are here: http://www.mortgagenewsdaily.com/mortgage_rates/blog/329814.aspx"
Matthew Graham : "I'd say that's a good read. I think it's just less downbeat than many were expecting. Bond markets corrected to "unchanged to slightly stronger" levels. The jump looks bigger due to the narrow range. Nothing much going on here just yet. A sustained break over 2.53-ish would be more significant."
Hugh W. Page : "Reading the statement it almost seems the Fed isn't that concerned about a short term slow down and still believes the economy is on the improvement track. That's how I read it (now i need to read it again :) ) "
Matthew Graham : "RTRS - RECOVERY IN HOUSING SLOWED SOMEWHAT IN RECENT MONTHS "
Matthew Graham : "RTRS- RPT-FED MAKES NO CHANGE TO ITS FORWARD GUIDANCE ON INTEREST RATES "
Matthew Graham : "RTRS- RPT-U.S. FED SAYS TO KEEP BUYING $85 BILLION IN BONDS PER MONTH, SPLIT AS $40 BLN MBS AND $45 BLN TREASURIES "
John Tassios : "by the time CFPB realizes the damage it will cause in housing market, it will be too late"
John Toepfer : "this is what my AE just emailed me:I can’t say anything until 4:00pm but you’ll know what’s happening then. "
Tony Mango : "Suntrust is closing wholesale, just verified."
Ken Crute : "lots of layoffs in ops and call center here in Richmond JT "
John Tassios : "That's been out there for a while John, they may actually exit wholesale now due to QM rules coming into play next year"
John Toepfer : "anyone hear about suntrust layoffs? exiting wholesale?"
John Tassios : "our company had a conf call on that very subject CS, that " Ability to Repay" rule is going to slow down files in UW and may even require a 2nd UW signature for back up. Quite a few loans will be declined to err on the safe side of that rule is my gut feeling"
Christopher Stevens : "Just got back from the MBA conference in DC and allI heard about for 2 1/2 days was document the hell out of the file. The CFPB will want to know why u/w made decision on loan(approve or decline), what steps they followed to get there and what documents did they look at as well as worksheets prepared. "