Yawn. What a slow day in global financial markets. No real headline
news to report tonight. Not really anything going on tomorrow either. Here's your "going out" MBS marks ...
FN30_______________________________
FN 4.0
-------->>>> -0-11 to
100-05 from 100-16
FN 4.5
-------->>>> -0-08 to
101-28 from 102-04
FN 5.0
-------->>>> -0-04 to
103-01 from 103-05
FN 5.5
-------->>>> -0-01 to
103-25 from 103-26
FN 6.0
-------->>>> +0-00 to
104-15 from 104-15
GN30__________________________________
GN 4.0
-------->>>> -0-12 to
100-09 from 100-21
GN 4.5
-------->>>> -0-08 to
102-00 from 102-08
GN 5.0
-------->>>> -0-03 to
103-18 from 103-21
GN 5.5
-------->>>> -0-02 to 104-02
from 104-04
GN 6.0
-------->>>> +0-00 to
104-18 from 104-18
Ahh Im just kidding...WHAT A DAY!!!!!!!!
US Stocks had one of those "face melting" rallies
after political policymakers hit global investors with a cold hard "NO MORE PROTECTIONISM" slap
to the face today.
After a fair amount of "arm twisting" the US Financial
Accounting Standards Board obliged the requests/demands of the US Congress to allow
banks more flexibility when exercising judgment on the application of
"mark to market" accounting. Specifically the accounting board relaxed
FAS 157-e : Determining Whether a Market
is Not Active and a Transaction Is Not Distressed and FAS 115-a, FAS 124-a, and
EITF 99-20-b: Recognition and Presentation of Other-Than-Temporary Impairments.
Here is the Summary of Board Decisions if you care to dive deeper into the
topic.
If you search the blogosphere there are a wide range of
opinions regarding the expected effectiveness of FASB's decision to ease
"mark to market". The real
debate lies in the argument over whether or not the relaxation of mark to
market will only result in additional balance sheet intransparency (not a word
but you follow) and perhaps in the long run....the total loss of perspective on
the REAL value of financial institutions. Others are upset the Geithner Plan
(PPIP) was never given a fair chance to test the market's willingness to
"bite the bullet" and get rid of whatever toxic junk is left on their
balance sheets. We'll find out soon enough....
Also making headline news today was the G20 Summit in
London. World Leaders agreed to cough up
$1.1 trillion more in an effort to put an end to the global economic mess. I
spent a fair amount of effort providing some details in this blog post MBS
UPDATE: G20 Reactions.
The diplomatic accord reached at the G20 Summit combined
with relaxations of mark to market accounting policies provided enough exuberance
for markets to start BELIEVING that the light at the end of the tunnel is not a
train heading in our direction. BELIEVING in a plan is step 1 in ending
protectionism. Spending a boatload of government money and lowering benchmark
interest to -0.00% is step 2 in the process of slowing the pace of economic contraction. Many
believe a bottom has been built into stock markets and a recovery is
already underway. Let's hope these actions are enough to convince global
investors that its time to join their government in the recovery process. No
More Protectionism!!!
Before I get all carried away with excitement that stock
markets may have finally found bottom (MAY HAVE) I should point out that several
market participants are stuck with open short positions. On the last NYSE short interest report....short interest rose
10.8% from late February to mid-March....the sharpest rise in open
shorts in more than a year. Short interest on the NASDAQ rose 4.4% over the same period. Financials
and information technology sectors received the largest short-interest inflows. Best of luck to you short sellers out
there....(not really...shame on you!!!) At this point you might want to cover
because it appears that investor sentiment is no longer "sell the rips and
buy the dips"...its more "look for an opportunity and HOLD". Is
that how you feel? Please say yes so I can be reassured that protectionism is finally fading.
The Dow closed up 216.48 to 7,978 (+2.79%). The S&P 500
closed up 23.30 to 834.38 (+2.87%). The NASDAQ closed up 41.79 to 1,294.30
(+3.34%)
Here's how the individual sector's performed:
Unfortunately the rally in equities came at the expensive of
Treasuries. The 10 yr Treasury yield rose to 2.75% from 2.65%. 2s
vs. 10s steepened 4bps to 187bps from 183bps.
Mortgages continue to trade in a world of their own while
the world digests the deluge of headline news and formulates new trading
strategies. MBS outperformed TSYs as yield spreads were slightly tighter at the
close. I am sure you are getting tired of hearing this but....
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. Today
the Fed 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. Government funded liquidity allows lenders to pass along lower borrowing
costs in the future....OR...it helps counterbalance the added cost of
supplementing a work force that is struggling to keep pace with continually
growing borrower demand for new loans. (Sound
familiar?)
Side Note: Chase Announced they will Purchase DU REFI PLUS today
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.
Regardless of your trading bias MBS coupons are considered
expensive in dollar price terms (as opposed to relative value), fortunately
mortgages have shown resiliency in sell offs and used any cheapening as an
opportunity for strengthening...Translation: MBS buying interests increase
after sell offs!!! Demand for MBS related cash flows remains strong from all
accounts ....Federal Reserve and day trading, profit taking, "up in
couponers" alike....
Here's an intraday chart of your "rate sheet"
influential mortgage coupons...
The Federal Reserve released their weekly purchase activity today. Net purchases were $32.910 billion MBS. 54% of the purchases were 4.0 coupons. 41% were 4.5 coupons. So 95% of their purchases were rate sheet supportive. This brings total net Federal Reserve MBS purchases to $302.81bn which means there is close to $950,000,000,000 left to help us out.
I had some fun with excel tonight (which is why I am so late to post) but I think it will illustrate the Federal Reserve's true intentions. So far 23.44% of total Fed purchases have been in 4.0 coupons and 47.36% of Fed purchases have been 4.50 coupons.
Here is a chart illustrating the evolution of Fed Agency MBS purchases starting with Jan.5 ending April 1.
Notice something???? Not too much besides 4.0s and 4.5s at this stage in the game right????
As is customary on the MBS Commentary Blog after the Fed releases their weekly Agency MBS Purchase report...THANK YOU FEDERAL RESERVE FOR SUPPORTING THE MORTGAGE INDUSTRY!!!!
TOMORROW: THE "BE ALL END ALL" OF ECONOMIC REPORTS: NON FARM PAYROLLS....Economists are anticipating some scary numbers. Consensus is for 660,000 job losses in March and an unemployment rate of 8.5%. I am going to throw out my guess...I say 740,000 job losses. What say you?
I will close out the day with a chain email sent to me by Mr. Victor Burek. A little perspective on socialism....
An
economics professor at Texas Tech said he had never failed a single student
before but had, once, failed an entire class. That class had insisted that
socialism worked and that no one would be poor and no one would be rich, a
great equalizer. The professor then said ok, we will have an experiment in this
class on socialism.
All
grades would be averaged and everyone would receive the same grade so no one
would fail and no one would receive an A. After the first test the grades
were averaged and everyone got a B. The students who studied hard were upset
and the students who studied little were happy. But, as the second test rolled
around, the students who studied little had studied even less and the ones who
studied hard decided they wanted a free ride too; so they studied
little.. The second test average was a D! No one was happy. When
the 3rd test rolled around the average was an F.
The
scores never increased as bickering, blame, name calling all resulted in hard
feelings and no one would study for the benefit of anyone else. All
failed, to their great surprise, and the professor told them that socialism
would also ultimately fail because when the reward is great, the effort to
succeed is great; but when government takes all the reward away; no one will
try or want to succeed.