MBS Commentary

MBS CLOSE: One Quarter Point From ALL TIME Highs

Matthew Graham — Wed, 25 Nov 2009 22:30:00 GMT

I was both happy and sad upon my nightly review of the most recent blog post. I like to read it even if I've written it, to assess what else might be needed on the day... I was sad to see there's not much left to discuss and I know that you'll all be sad to see me type less, but I was happy that AQ related the content exactly as I would, and that my Thanksgiving break could start that much earlier as I'd likely be able to finish up early. So if you haven't read MBS Afternoon , do it. That said, I'll just give whoever is interested a quick run down of my charts for the evening. Certainly some epic things happening, but plenty of counterpoints as well. Aren't there always?! 2 Day 4.5 MBS Other than the fact MBS closed at another multi-month high (albeit by a scant...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS AFTERNOON: Rates Move Outside the Range

Adam Quinones — Wed, 25 Nov 2009 20:37:00 GMT

Last week the 10yr TSY note bounced around between 3.32% and 3.37%. Early on this week, that range was broken as 10yr note yields tested 3.42%. However, as positional support remained in tact, higher yields and lower prices drew out bargain buyers which quickly pushed yields back into last week's range. This is considered a range breakdown correction. Spurred on by momentum, traders pushed yields back to 3.32%, the lower limits of last week's range. This highly trafficked pivot point, which failed to break three times last week, was broken today. The 10yr TSY note is currently trading +0-11 at 100-30 yielding 3.264%. The question is now...will the range breakout fail just as the range breakdown did earlier this week? As the year draws nearer to a close, the long end of the yield curve...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS LUNCH: 7 Year Treasury Note Auction Results

Matthew Graham — Wed, 25 Nov 2009 18:04:00 GMT

YIELDS High 2.835 pct Median 2.750 pct Low 2.650 pct PRICE/ACCEPTANCES Price 99.463748 Accepted at high 87.98 pct Bid-to-cover ratio 2.76 AMOUNTS TENDERED AND ACCEPTED (dollars) Total accepted 32,000,045,800 Total public bids tendered 88,265,357,800 Competitive bids accepted 31,976,388,000 Noncompetitive bids accepted 23,657,800 Fed add-ons 960,931,500 Primary Dealer Tendered 57,753,000,000 Primary Dealer Accepted 8,922,950,000 Primary Dealer Hit Rate 15.45% Primary Award Overall Award 27.88% Direct Bidder Tendered 4,730,000,000 Direct Bidder Accepted 3,073,000,000 Direct Bidder Hit Rate 64.97% Direct Bidder Overall Award 9.60% Indirect Bidder Tendered 25,758,700,000 Indirect Bidder Accepted 19,980,438,000 Indirect Bidder Hit Rate 77.57% Indirect Bidder Overall Award 62.44% The initial reaction...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS MORNING: MBS Breaking Even As Auction Approaches

Matthew Graham — Wed, 25 Nov 2009 15:39:00 GMT

As has been very much the custom recently, Tsy's are having in "inside day" so far as ranges narrow into ready position before important data. If you need the refresher, "inside" refers to today's trading range lying inside yesterday's range. That generally makes for the collision of competing trends at some point and today is no exception. If the upper trendline on the MBS portion of the chart seems aggressively sloped, keep in mind that the chart scaling is a bit compacted in order to fit two days of prices on to the chart. Fairly regular waves of chopatility leave us exactly unchanged at the moment with the 4.5 coupon at 102-09. Treasuries are worse off with the 10yr price down 10 ticks and the yield up to 3.338. Ha! If yield RISING to 3.338 is the worst news...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS ALERT: Better Than Expected Housing Data Pushes Rates Higher

Adam Quinones — Wed, 25 Nov 2009 15:04:00 GMT

New Home Sales data was just released...better than expected findings were reported. In October... Single-Family Home Sales rose 6.2% to an annual rate of 430,000 sales. Much better than the market's expectation for 410,000 annual sales and 25,000 units higher than the 405,000 pace reported in September At the current annual pace of sales, New Home Supply will last for 6.7 months....the lowest amount of supply since December 2006. The better than expected read on the health of housing has pushed 10yr yields up 2bps to 3.33%...and pulled "rate sheet influential" MBS prices lower. Beware of chopatility. Pricing may be delayed and some lenders may even reprice for the worse.......(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS OPEN: Choppy Start to Session After First Round of Data

Adam Quinones — Wed, 25 Nov 2009 14:30:00 GMT

GREEN was splattered all over MBS price screens yesterday as every offer got lifted more times than Joan Rivers face. Lenders repriced for the better following continued valuation appreciations. I now spy with my little eye, rate sheet rebate paying at 4.50. The FN 4.0 ended the day at +0-10 at 99-27 yielding 4.023% and the FN 4.5 went out the door +0-08 at 102-08 yielding 4.225%. The secondary market current coupon was 4.033%. Yield spreads were REALLY tight at +70/10yr TSY and +60/10yr swap. Don't make any broad assumptions about the rates market because mortgages have traded so well over the past three weeks. While TSYs continue to do juuuust fine, consistent outperformance in the agency MBS market is a function of supply/demand dynamics..or a lack of MBS supply to put it more simply...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS CLOSE: Highest Closing Prices In Over Half A Year

Matthew Graham — Tue, 24 Nov 2009 22:34:00 GMT

Spring of 2009 marked a period of the most stable MBS price movements for 4.5's. Not only was the range about as narrow as it gets, it was also solidly above 101-00. With the economy worsening and with the Fed love affair still in the courtship phase, any threat to MBS seemed so far in the future as to be of little concern. This was truly the golden age of production coupon MBS. When we closed over 102 yesterday, it was the first time since Spring. Today's rally takes prices higher than any price seen this spring with the exception of the the initial day of the spike in mid March when the Fed announced round 2 for MBS. This was really the check-mate for MBS/Tsy spreads. As you can see in the chart below, MBS held steady while tsy's comparatively plummeted to their lows of the year...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS AFTERNOON: Rallying Near All Time Highs After FOMC

Matthew Graham — Tue, 24 Nov 2009 19:37:00 GMT

On only several occasions has the 4.5 MBS closed any higher than it is right now. The 4.5 is up 10 ticks on the day at 102-10. This is actually higher than the period of extreme stability and extremely high prices during the spring where the 4.5 topped out at 102-07. At this point, we'd have to go back to mid-March for similar prices. And even though we're looking at apples and oranges to some extent by comparing intraday prices with closing prices, 3pm marks are right around the corner... We've discussed the fact that tsy's are no where near their all time best levels given comparatively wider spread earlier in the year. In other words, it's not so much that the RATES market is at all time low yields, but rather, MBS have tightened so much for so long that less heady levels...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS LUNCH: Strong 5yr Note Auction. Rates Still Sideways

Adam Quinones — Tue, 24 Nov 2009 18:00:00 GMT

The Treasury has successfully auctioned a record $42 billion 5 yr notes at a high yield of 2.175%, which is lower than the 1pm "When Issued" mid-market yield. The bid to cover ratio, a measure of demand, was 2.81 bids for every 1 accepted by the Treasury. Very strong demand. Here is a recap of the auction results... 5-YEAR NOTES YIELDS High 2.175 pct Median 2.100 pct Low 1.940 pct PRICE/ACCEPTANCES Price 99.764325 Accepted at high 67.34 pct Bid-to-cover ratio 2.81 AMOUNTS TENDERED AND ACCEPTED (dollars) Total accepted 42,000,072,500 Total public bids tendered 118,040,288,500 Competitive bids accepted 41,831,884,000 Noncompetitive bids accepted 118,188,500 Fed add-ons 1,261,222,600 Primary Dealer Tendered 77,754,000,000 Primary Dealer Accepted 15,146,360,000 Primary Dealer Hit Rate...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS MORNING: MBS Slightly Improved Into "Three Hour Break"

Matthew Graham — Tue, 24 Nov 2009 15:30:00 GMT

After a concentrated blast of econ data this AM, the calendar is on break until the 5yr note auction at 1pm. Sure, there is a 4 week bill auction at 1130, but it's inconsequential. In fact, although volume is bit more robust this AM compared to yesterday, it's certainly less than the data would justify in the absence of auctions and FOMC. So as you may have been expecting anyway, the most consequential items of the day (and perhaps the week) are yet to come, and the only chance for a surge in volume comes with it. All of above notwithstanding, there was always a chance that radically unexpected results in econ data will cause volatility. But none of the data reported this AM was up to that task.. GDP matches consensus of 2.8%. Prices up less than expected (.5% vs. .8%) Corporate Profits...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS OPEN: Beware of Profit Taking

Adam Quinones — Tue, 24 Nov 2009 14:00:00 GMT

Recap of Yesterday... Existing Home Sales (Oct) +10.1% to 6.1 million annual pace. 7 months of supply. Much stronger-than-expected, highest since Feb 2007. Distressed sales accounted for 30% of total sales. Median price down 1.7%. READ MORE St.Louis Fed President supports added funding for Fed's MBS purchase program: “I have advocated to keep the asset purchase program open but at a very low level, and wait and see what happens, and as information comes in about the economy we can adjust that program while the federal funds rate remains at zero” Dow +1.29% to 10,450.87. S&P +1.36% to 1,106.23. NASDAQ +1.4% to 2,176.01. Dow closed at a new 13 month high The dollar was weaker and Oil more expensive. Gold sets new record price high at $1,170.55/ounce (not inflation adjusted...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS CLOSE: 4.5 MBS At Highest Levels Since May 6th

Matthew Graham — Mon, 23 Nov 2009 22:25:00 GMT

The headline may be the most exciting thing about today and does much to counter the suggestion that the journey is more important than the destination. Indeed, today's destination is much more of a conversation piece than the journey. In the interest of delaying what may or may not be perceived as "rain" on your respective parades, we'll go a bit out of order and start with the medium term picture of MBS showing a higher close than early October. Like we said, one has to go back to May 6th to find a higher close in 4.5 MBS, although you be the judge as to whether or not rates on May 6th are the same rates you're seeing today... No seriously, I'm not going to pull up the old rate sheets, so please tell us! Regardless of the "personal best" for the 2nd half...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS AFTERNOON: Day Traders Bring Rates Full Circle. Reprices Reported

Adam Quinones — Mon, 23 Nov 2009 20:06:00 GMT

Heading into the after hours session, the FN 4.0 is +0-05 at 99-17 yielding 4.053% and the FN 4.5 is +0-05 at 101-30 yielding 4.263%. The secondary market current coupon is 4.095%. The CC is +73/10yr TSY and +61/10yr swap. Several lenders have repriced for the better as price improvements have held since the choppy reaction the 2 yr note auction. In the MBS market, trading flows have been slow and volume below average. "Rate sheet influential" yield spreads are marginally tighter as supply from originators has been muted. As the FN 4.5 tests the 102 price handle expect to see profit taking pick up...especially when benchmarks are benefiting from a bid (offers getting lifted). All this means is we dont expect to see MBS prices venture too far into the 102-00 price handle (without spreads...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS LUNCH: (Alert?) AUCTION RESULTS

Matthew Graham — Mon, 23 Nov 2009 18:00:00 GMT

Auction bullet points: $44 BLN 2-YEAR NOTES AT HIGH YIELD 0.802 PCT, AWARDS 95.78 PCT OF BIDS AT HIGH BID-TO-COVER RATIO 3.16, NON-COMP BIDS $416.6 MLN PRIMARY DEALERS TAKE $22.08 BLN OF 2-YEAR NOTES SALE, INDIRECT $19.36 BLN After the results, MBS sold off 4 ticks or so, nothing major. Tsy yields in the long end had already conceded up to around 3.4, and so only moved marginally higher before joining MBS for some moderation. Said moderation has made for more or less unchanged levels from pre-auction trading. Here's how it all looks.. So this is why we advise more patience than you might want to have following auctions... The first move down was quasi alert-worthy, but now we may be headed back to test the resistance in more positive areas of the day. Stay tuned!...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.

MBS MORNING: MBS Improving vs. Treasuries

Matthew Graham — Mon, 23 Nov 2009 16:32:00 GMT

As the noon hour approaches, MBS are up on the day with the 4.5 up 2 ticks to 101-27. Meanwhile, treasuries are still down on the day with the 10yr off 4 ticks, bringing the yield up to 3.381. Without support from some positive price movement in tsy's, MBS may have a tough time moving much higher. On the two day chart, we can see MBS struggle with 101-28 despite tsy yields being slightly lower than this AM: There are a couple disturbing developments in tsys that suggest they may have a tough time of their own with important technical levels. Well, at least they've had a tough time so far today in terms of the 3.38 inflection point in 10yr yields. 3.38 served as almost perfect support all week in addition to it acting as a noticeably inflection point for months. But with the slightly...(read more)

Forward this article via email: Send a copy of this story to someone you know that may want to read it.