"Low Volume" is actually insufficient to describe today's apathy. Even against the backdrop of recent summer weeks--where volume has been characteristically low--today is lower still. Sometimes this makes for choppier price action and this was indeed the case this AM. But as the world rubbed its eyes, had its coffee, and finally started to wake up to a new week, trading ranges have tightened (see red lines below) and MBS prices have generally improved.
Chalk up the volume and volatility problem to the impending tsy supply poo-storm set to hit tomorrow at 1pm with $42 bln in 2yr notes. Sure some might mention the TIPS auction today, but price action batted nary an eyelash after the results. Beyond that, there were only shorter term bill auctions which do not speak to the numbers we're concerned with, and of course new home sales this AM. All in all, not much to inspire, well, anything at the moment, and as expected, we find ourselves in the familiar situation of waiting for tsy supply. Oh happy day.
Recall from our discussions last week and beyond the following important things to remember as we prepare for auction week (not an all inclusive list, but the important stuff):
- Treasury Auctions occur (normally) at 1pm Eastern, which gives most lenders ample opportunity to have rate sheets out before the more volatile parts of the day roll around
- Speaking of volatility, the time frame immediately following treasury auctions is well known for being extremely volatile. In fact, it's not uncommon to see a huge move in one direction coinciding with other market metrics only to have the moves turn course and follow a path that is the polar opposite of their first and very convincing indication.
- Even though lenders will normally put out rates before the auction, THEY ARE aware of it and thus it's not uncommon (depending on the lender) to see some over-hedge in the rate sheets, meaning that YSP might be a little more slim than it would be without the impending volatility baked in to the cake.
- Because lenders are expecting a market moving event ahead of time, they are generally more quick to react than on an unexpected headline for example.
- Also, some lenders may try to "read" the forthcoming market direction and may actually make the wrong read. If this occurs, you can see counterintuitive pricing decisions. If that happens, they are usually corrected by days end.
- So the blanket advice is to BE READY TO LOCK ANYTHING that you're considering locking this week. Whether that's pieces of paper filled out with all the required info or pristinely uploaded 3.2's into your lender's sites, just get "as ready as you can."\
- Don't forget that if MBS spike radically worse, pricing can get suspended mighty quickly, so if available to you, have a backup plan should your lender of choice undergo some unexpected rate-sheet drama.
- If you do get those locks off in time, make sure you didn't do anything in your lock process that could be used to invalidate the lock, especially if this is a lender with whom you don't have a longstanding relationship as it's not out of the realm of possibility for lenders to exercise their ability to kill those now-costly deals if you've given them an excuse to do so by failing to dot and "I" or cross a "T."
- Final thought (for now). Even though we're revisiting all these seemingly austere bullet points, be prepared for something "sideways" as well. Bottom line: have a gameplan for a big rally, big loss, and big neither.
MBS Market Alerts
