Amidst the euphoric sanguinity produced from FASB's decision to relax "mark-to market" accounting policies and the developing global economic accords emanating from diplomatic leaders at the G20 Summit...MBS continues to show its resilience and independence!
from 5pm "Going Out" Marks...
FN30_______________________________
FN 4.0 -------->>>> -0-09 to 100-07 from 100-16
FN 4.5 -------->>>> -0-06 to 101-30 from 102-04
FN 5.0 -------->>>> -0-04 to 103-01 from 103-05
FN 5.5 -------->>>> +0-00 to 103-26 from 103-26
FN 6.0 -------->>>> +0-01 to 104-16 from 104-15
GN30______________________________
GN 4.0 -------->>>> -0-05 to 100-16 from 100-21
GN 4.5 -------->>>> -0-05 to 102-03 from 102-08
GN 5.0 -------->>>> -0-03 to 103-18 from 103-21
GN 5.5 -------->>>> +0-02 to 104-06 from 104-04
GN 6.0 -------->>>> +0-01 to 104-19 from 104-18
I know your first question is "Adam are you losing your mind? You just forewarned us that a reprice for the worse is a possibility!!!
Yes MBS prices plunged after Treasury yields succumb to the pressure of equity investor enthusiasm, but guess what...mortgage buyers didn't let lower prices linger for long! MBS market participants were quick to take advantage of cheaper dollar MBS prices....even as TSY yields continued to rise and yield spreads closed the early gap.
Note: circles illustrate spike in MBS bid after prices moved to less expensive levels...all while TSY prices showed only marginal improvements. The FN4.5 coupon's price dips following the initial "buying on weakness" illustrates originators dumping supply of new MBS on the market. Even after these instances...bids improved following the dip! MBS demand remains strong!!!
In terms of the MBS coupons that are most indicative of future rate sheet behavior, the Federal Reserve continues to provide support for mortgage bankers looking to hedge their pipelines from interest rate risk. So far today the Fed has had their hands full as originators, who anticipate an increased demand for new loans, are ensuring they lock in pipeline profits at MBS price highs. This government funded liquidity allows lenders to pass along lower borrowing costs in the future....OR...it helps counterbalance the cost of supplementing a work force that is struggling to keep pace with continually growing borrower demand for new loans. Remember more labor = more fixed costs!
Non-Federal Reserve accounts, aka conventional market participants, are choosing to chase profits in shorter duration "up in coupon" mortgages. This is nothing new as the MBS market deems borrower refinancing behavior to be slower than expected. Not a surprise considering the casual attitude that the majority of mainstream lenders have regarding the implementation of relaxed GSE lending guidelines. This is why the fuller side of the stack is more stable. "Up in coupon" coupons have more relative value as their expected lives are forecasted to be quite short and yields spreads are more attractive to investors looking for short term investments. We dont want to ignore that segment of the market but your attention should be more focused on the current coupon/production MBS.
TSY yields remain under pressure as stock markets continue to push higher. The Dow, S&P, and NASDAQ are all up around 4.00% as many investors believe the relaxation of mark to market policy is a sign that a bottom has been reached in stock markets. Tomorrows released of Non Farm Payroll data should be a supportive event for TSYs and MBS tomorrow (although MBS remains at expensive levels and will therefore be continued to be subjected to brief supply disruptions and "up in coupon" profit taking ).
Check out how stocks are performing by sector...
Commodities are benefiting from reflation trade while Gold is losing its luster...
Waiting on deluge of rhetoric from G20 leaders
MBS Market Alerts
