After bond markets showed a surprising amount of strength following NFP, we'd discussed to possibility of a more developed bounce back lasting anywhere from 1-3 days and then taking guidance from Retail Sales. Weakness began creeping up in the overnight session, but was fairly manageable for the first two hours of the day. Volatility picked up after 10am, and although we caught a fairly good bounce heading into the noon hour, everything in the PM pointed toward weaker prices. By the end of the day, MBS and Treasuries both jumped on the bandwagon and shed roughly half a point in price. Does this mean we're heading back in the other direction now? It's possible, but tomorrow morning's Retail Sales and other data will probably decide.
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
Once More, With Feeling; Full-Fledged Reprice Risk
There have been quite a few reprice alerts so far today, partly because of how the weakness has unfolded and partly because it's the first major shift in momentum since NFP. This is the one that brings "most lenders" into the picture as being at risk for a negative reprice.
The losses in MBS are only a another few ticks beyond the last alert. Fannie 4.0s are down 11 ticks on the day at 102-14. Most rate sheets came out when prices were 103-20 to 103-24.
Another Incremental Increase in Reprice Risk
About 30 seconds after the last alert, the technical boundary mentioned in Treasuries gave way and the expected dose of selling followed. While there has been some indecision in how far to extend the selling (and even a quick bounce back attempt), Fannie 4.0s are now down to 103-17, levels that connote slightly more developed reprice risk. We're still not to the point where all lenders will reprice, but we'll probably see a few at these levels.
Still Hanging Out Near Lows; Modest Reprice Risk Remains
No major changes since the post-auction alert. MBS are still right in line with their lows of the day. Treasuries haven't broken any higher in yield, but are similarly right at their weakest post-auction levels.
Negative reprice risk is just barely on the radar at current levels. It's the sort of situation where we might see just a few lenders reprice while most others would hold off until we saw another 2-3 ticks of weakness.
If the shape of trading since the auction is any indication, we can't rule out additional weakness into the afternoon. Support has been holding, but the next tick weaker would take out a technical boundary in 10's and potentially pave the way for more selling.
MBS hit New Lows after Auction; Reprice Risk Increases
First thing's first: it's too soon to tell whether or not the initial reaction will prove to be a knee-jerk, but so far, it's been negative for bond markets. 10's are up a quick 1.5bps and MBS are down to the lows of the day (half a tick lower than the previous low, so not much yet). Even so, this does slightly increase the negative reprice risk for the earliest-acting lenders, though more lenders would be at risk if we lost another 2-3 ticks.
Live Chat Featured Comments
Gaius Rossini : "those are the two links getting passed around."
Gaius Rossini : "http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/15/stan-fischer-saved-israels-economy-can-he-save-americas/"
Hugh W. Page : "Good piece on his views here http://blogs.wsj.com/economics/2013/09/23/the-key-to-forward-guidance-dont-give-it-fischer-says/"
Hugh W. Page : "He's against giving "Forward Guidance" which I agree with completely. He says it can cause market confusion because the Fed really doesn't know with precision what it's going to do in the future. Creates uncertainy, confusion, and volatility. Totally agree..... I say sign hm up"
Victor Burek : "Fischer has a reputation for beng more hawkish than most - evidenced by his refusal to engage in the kind of dovish activity the rest of the world did while in charge in Israel and is especially downbeat on forward guidance."
Evan Putt : "taught Draghi too"
Matthew Graham : "other than what today's articles convey (i.e. smart dude... taught Bernanke at MIT... saved Israel's banking system or some such thing)."
Matthew Graham : "I don't know anything about him."
Evan Putt : "MG: is Fischer seen as more of a hawk or dove when it comes to QE?"