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MBS RECAP: What Exactly Might The Fed Do Tomorrow and Why Should We Care?
Dec 15 2020, 4:59PM

MBS suffered, somewhat, from supply/demand issues immediately following the Fed's 11:30-11:50am buying operation today.  Prices rebounded by the close and were never catastrophically lower in the first place.  With the exception of a surprise stimulus headline or a huge departure from expectations in Retail Sales tomorrow morning, focus now shifts squarely to tomorrow's Fed announcement.  What's at stake?  The Fed may or may not adjust the weighted-average maturity (WAM) of its bond buying portfolio.  If they do, it would likely give Treasuries a friendly boost.  Vice versa if they don't.  MBS would see a smaller version of the Treasury move in either case.

Econ Data / Events
  • 20min of Fed 30yr UMBS Buying 10am, 1130am (M-F) and 1pm (T-Th)

  • NY Fed Manufacturing 4.9 vs 6.9 f'cast, 6.3 prev

  • Import Prices 0.1 v 0.3 f'cast, -0.1 prev

Market Movement Recap
08:21 AM

Bonds were modestly stronger to start the overnight session and then weakened slightly during European hours.  There wasn't enough movement in either direction to justify a search for market movers.  Same story post-econ data just now.  10yr yield is up half a bp at .903 and UMBS 1.5s are down 2 ticks (0.06) at 100-28 (100.875).

12:20 PM

Modest amount of MBS-specific weakness + modest amount of illiquidity = a moderate but fairly abrupt drop in MBS prices.  Treasuries haven't experienced similar weakness because there's no broad market mover in play.  Rather, MBS weakness is almost certainly a result of the Fed's most recent buying operation (which ended right when the weakness began, and which likely favored MBS 1.5 coupons over 2.0s).

03:36 PM

Losses accelerated heading into the 2pm hour as Treasuries joined in the bond-selling spree.  10yr yields were as high as .925 and 1.5 UMBS were as much as a quarter of a point lower on the day.  They've since recovered an eighth of a point.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
UMBS 2.0
103-18 : -0-03
10 YR
0.9110 : +0.0200
Pricing as of 12/15/20 4:57PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:02PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
12:17PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
9:04AM  :  Bonds Modestly Weaker Following Vaccine Headlines

Economic Calendar
Time Event Period Actual Forecast Prior
Tuesday, Dec 15
8:30 Export prices mm (%) Nov 0.6 0.3 0.2
8:30 Import prices mm (%) Nov 0.1 0.3 -0.1
8:30 NY Fed Manufacturing Dec +4.9 6.90 6.30
9:15 Industrial Production (%) Nov 0.4 0.3 1.1

About the Author

Chief Operating Officer, Mortgage News Daily / MBS Live
A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators. ... more

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