Bond markets began the day with promise. Technical support levels managed to hold up overnight in Treasuries. MBS began the day in positive territory and were unfazed by the as-expected Jobless Claims data. That only left Chicago PMI on the data calendar for the rest of the day--a report that can cause fairly big movement even before it's released.
This has to do with ISM Chicago (purveyors of the data) making it available to their subscribers 3 minutes before the official 9:45am release. On the occasions where the report is significantly stronger or weaker than expected, this almost always results in a noticeable reaction at 9:42-9:43. Such was the case today--so much so, in fact, that we put out a heads-up just before the release.
That heads-up could scarcely prepare us for the magnitude of the beat. It was the biggest improvement in more than 30 years for the data series--AND on the month of the government shutdown. The net effect is that MBS have given back all their gains from this morning, and Treasury yields are about 3 bps higher than yesterday. If those stats don't seem too troubling, keep in mind that they were nearly 4bps lower on the day before the data. MBS were up over 10 ticks--and stably too! It's not the end of the world in the bigger picture, but it was certainly an abrupt mid-day adjustment.
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 11:09 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Selling Stabilizes; MBS Back Into Positive Territory; Not Out of Woods Yet
After moving well into negative territory by 10:15am (down 4 at 102-12), Fannie 3.5s are back into positive territory in the past few minutes, currently +2 at 102-17. This is still 9 ticks off the highs that prevailed during some lenders' rate sheet print times and technically still a risky area for reprices. 10yr yields were as high as 2.565 but have returned to 2.549 now--notable because it's almost perfectly in line with yesterday's post-FOMC supportive ceiling. Failure to break lower through 2.549 is anywhere from disconcerting to ominous the longer it continues to be the case (10's just ticked up to 2.552 as I type, so jury is still out on 2.549).
Snowball Selling in Treasuries; MBS Follow; More Reprice Risk
Technical lines in the sand are being broken and selling is begetting more selling in Treasuries at the moment. 10yr yields are quickly up to 2.562 from 2.505 before Chicago PMI data. MBS can't help but keep some measure of pace with this sort of weakness and thus we find ourselves into negative territory on the day with Fannie 3.5s down a tick at 102-15.
This alert is to add emphasis to the previous alert. Lenders who were out with rate sheets before Chi-PMI are VERY likely to be repricing negatively.
Negative Reprice Risk Already Increasing After Chicago PMI
Chicago PMI came out head-scratchingly strong, and has send bond markets to their weakest levels of the day. 10's are up to 2.536 and Fannie 3.5s are 8 ticks off their highs at 102-18 presently. This is enough for negative reprices from any lenders who were out with pricing before the data.
ECON: Chicago PMI Much Stronger
- Chicago PMI 65.7 vs 55.0 Forecast
- New Orders 74.3 cs 58.9 previously
- Employment Index 57.7 vs 53.2 previously
- Market Reaction: Bond markets move quickly to weakest levels.
The October Chicago Business Barometer rose to 65.9 in October from 55.7 in September, led by double digit gains in New Orders, Production and Order Backlogs. October’s gain placed the Barometer at the highest level since March 2011 with companies seemingly unaffected by the government shutdown.
October’s advance in the Barometer was its biggest monthly increase in over 30 years and only the third time in the past decade the Barometer has risen for four consecutive months.
Chicago area business expanded at a surprisingly steep pace with some panelists reporting brisk activity linked to inventory replenishment, increased customer demand, success with new product lines and new distribution channels.
New Orders soared to their highest level in nine years, adding to two prior months of gains while Production expanded to its highest level since February 2011.
Chicago PMI Probably About to Come Out Stronger
Stocks and bond yields moving higher in the 3 minutes before the report--usually indicates that ISM Chicago subscribers just received a Chicago PMI report that beat the consensus. We'll see shortly.
Bond Markets Stronger Overnight; Holding Gains After Claims Data
Overnight Treasury trading began slowly and uneventfully with yields holding just under yesterday's highs during Asian hours. The highlight of European hours was a 0.2% increase in Eurozone unemployment and a big miss (0.7 vs 1.1) in inflation. German Bunds moved an instant 3 bps lower and US Treasuries soaked up about a bp of incremental improvement as a result.
That got 10yr yields down to 2.51, which remained as the low end of the morning range with 2.52 on the other side into the domestic session. Fannie 3.5s started the day roughly 9 ticks higher at 102-24.
The as-expected Jobless Claims data was mildly positive for bond markets with 10yr yields making new lows at 2.502 and Fannie 3.5s moving up 2 ticks. Both moves have since been unwound, but not aggressively so, and we remain near the best levels of the morning.
The next data point of the day arrives at 9:45 with Chicago PMI, but can cause a reaction as soon as 9:42am if the numbers vary greatly from expectations (subscribers get it 3 minutes early).
ECON: Jobless Claims in Line with Forecast
- Claims 340k vs 339 forecast, last week unrevised at 350k
- Continued Claims 2.881 mln vs 2.870 mln forecast
- Market Reaction: MBS and Treasuries at best levels of the morning--not much changed after Claims data, but a few ticks improved if anything.
In the week ending October 26, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 10,000 from the previous week's unrevised figure of 350,000. The 4-week moving average was 356,250, an increase of 8,000 from the previous week's unrevised average of 348,250.
The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 19, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 19 was 2,881,000, an increase of 31,000 from the preceding week's revised level of 2,850,000. The 4-week moving average was 2,878,750, a decrease of 10,000 from the preceding week's revised average of 2,888,750.
Live Chat Featured Comments
John McClellan : "as long as you own a primary fannie does not require history "
Kim : "FNMA definitely allows the income without the rental history, I have the guidelines in front of me...I had to ask my scenario desk before starting my current loan. as long as no overlays we allow it (we are correspondent and have many investors)"
Kim : "I can always use a rent survey - 75% for a first rental property purchase - just got one approved yesterday. "
Jeff Anderson : "SV, you s/b able to use the appropriate % of the rent that the appraiser says is appropriate. This is from Allregs. B3-3.1-08, Rental Income"
Mike Ford : "yes u can if was prim res just moved out of "
Scott Valins : "if someone has no history of owning rental properties can you NOT give her the future income from her first rental property?"
Jude Bridwell : "2.50 to 2.56+ on one report"
Matthew Graham : "they can't hide their feelings about QE any longer. "
Ted Rood : "Stocks down on unexpectedly good employment data, go figure."
Jude Bridwell : "two days in a row up double digit green only to go back in the red"
Matthew Graham : "right in the release: "October’s advance in the Barometer was its biggest monthly increase in over 30 years and only the third time in the past decade the Barometer has risen for four consecutive months." (these are always linked at the bottom of the "ECON:" update when you click on it)"
Matthew Graham : "RTRS- CHICAGO PMI EMPLOYMENT INDEX 57.7 IN OCT VS 53.2 IN SEPT "
Matthew Graham : "RTRS- CHICAGO PURCHASING MANAGEMENT PMI INDEX AT HIGHEST SINCE MARCH 2011 "
Matthew Graham : "RTRS- CHICAGO PURCHASING MGMT NEW ORDERS INDEX 74.3 IN OCT VS 58.9 IN SEPT "
Matthew Graham : "RTRS- CHICAGO PURCHASING MANAGEMENT INDEX 65.9 IN OCTOBER (CONSENSUS 55.0) VS 55.7 IN SEPTEMBER "
Matthew Graham : "and fairly big too judging by the move"
Victor Burek : "was wondering if it leaked early"
Matthew Graham : "Chi PMI must have beat"
Drexel Hill Mortgage, Inc. : "Mock dialog was awesome!"
Kris Langlie : "Agreed that the "mock dialog" was great. Thank you!"
Hugh W. Page : "MG your "mock dialogue" in the morning post was brilliant and probably represents a lot of truth. The Fed continues to "tinker" with influencing our future expectations."
Matthew Graham : "RTRS- NO CLAIMS BACKLOG IN LATEST WEEK IN CALIFORNIA, LABOR DEPT OFFICIAL SAYS, FOLLOWING COMPUTER UPGRADE GLITCHES "
Matthew Graham : "RTRS- US JOBLESS CLAIMS FELL TO 340,000 OCT 26 WEEK (CONSENSUS 339,000) FROM 350,000 PRIOR WEEK (PREVIOUS 350,000) "