For those of us whose lives are intertwined by mortgage markets, these are dark times. The 3-day sell-off just seen in MBS (or Treasuries for that matter) is as bad as I have seen, and that's saying something considering I wrote the original coverage on 'Black Wednesday.' Whereas that movement was more of a growing pain with respect to the 4+ years of the Fed in MBS markets, the current move is more akin to death throes. That's not to say that the benefits of Fed MBS purchases ended this week, but it is safe to say that this week was, by far and away, the most significant confrontation those benefits have had with their mortality. Consider the 'beginning of the end' of a relationship as epic and storied as that of the Fed and MBS is a grave matter indeed. That gravity is grotesquely evident in the following chart of weekly candles:
When I put the Gann Fan chart on the Day Ahead, I didn't imagine it would stand too much of a chance of being relevant today, but included it just to lay out the boundaries of what I felt like the worse case scenario might be. Far from irrelevant in retrospect:
There was no data or news to blame for today's move. This is pure pain trade gone bad. This is a snowball compounded by uncertainty. This is the break-up letter we were afraid to get in early 2013 that surprisingly showed up on our doorstep in May. This is the biggest falling knife in 10 years for bond markets and no one wants to catch it. It's still falling. For those of us deeply focused on mortgage markets for a living, it feels like we're falling, still waiting to hit bottom, hoping it's bouncy. Even if it's not, hopefully someone has a parachute. And even though the Fed sent the break-up letter, hopefully they're still willing to talk it over. If not, the effects on the mortgage market may be a bit more 'psycho ex' than pundits seem to be expecting. There's nothing left to say. Try to detach from this ugliness and take care of yourself this weekend. We're down, but we're not out.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 4:04 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
New Highs for 10's; New Lows for MBS; New Reprices Possible
Not that negative reprices have ever stopped being a possibility today, but just in case you hadn't gotten your fill of bad news for the day, we're making new lows here after the 3pm TSY pit close. Fannie 3.5s are down a point at 100-15 and 10yr tsys are up almost 10bps at 2.516. Pain trade.
Lquidity Breakdown! All Markets Running For Exit. REPRICES INBOUND!
If you were hoping it wouldn't get any worse. It's getting worse. Here's the caption from MBS-Mid-Day, which essentially gives the reasoning:
Bond markets are in a bad way... One constant theme we're hearing from traders has been the liquidity problems. That means that bets are all over the board (volume can be high even when liquidity is low, if traders aren't on the same page, and they're not). This also makes for bigger swings when sellers decide to hit the bid of buyers or buyers decide to lift the offer from sellers. A nice tight distance between buyers and sellers = more liquidity and less volatility. A huge, panicky, all-over-the-board distance means, well... it means we're getting what we're getting. Severe losses that seemingly make no sense given the economic data and further pain for rate sheets.
This slide continues now and Fannie 3.5s are down to 100-24. 10's up to 2.5067. YOU WILL SEE REPRICES FROM EVERY LENDER THAT HASN'T REPRICED ALREADY. Even those, you may see round 2. Sorry to be the bearer of bad news.
10's Break Technical Ceiling, MBS Follow Lower, Negative Reprice Risk
The technical boundaries mentioned in the last alert were broken, and as feared, there is a good amount of follow through selling. Not sure where this will stop yet, but 10's already up to 2.47's and Fannie 3.5's pushing 101-00. Negative reprices are coming, probably widespread.
Live Chat Featured Comments
Nate Miller : "REPRICE: 3:10 PM - Caliber Funding Worse"
JCC : "REPRICE: 2:42 PM - Chase Worse"
Christopher Stevens : "REPRICE: 2:41 PM - Flagstar Worse"
Troy Evans : ""Morgan Stanley expected gross production in MBS to decline to between $100 and $110 billion per month from about the $150 billion average of the past six months. Based on the Fed's buying of about $70 billion per month, their purchases would take out 60 to 70 percent of the monthly production, up from less than 50 percent - that should help from a supply/demand perspective.""
Matthew Graham : "Late Friday leakiness for sure. Note the MBS-specific-ness (i.e. making news lows while TSYs stay contained)."
Brent Borcherding : "This appears to have a little heavier flow than a leak."
Jon : "Late Friday leakiness, FNMA 3.0 to break 97?"
Matthew Graham : "No magic number ahead of NFP. Maybe 2.63-ish would get a strong showing, but maybe we won't have to find out (hoping anyway)"
Tim Y : "mg, at what point do you think the 10-year becomes a buying opportunity? It has to be close to where it is now. "
Gary Bracht : "recommendation for explaining the last weeks rise in rates...get the borrowers away from rate and show them their payment compared to what they were going to pay (if you had been working with them previously) at the lower rate...and focus on the different in payment. Usually the difference isn't much and they can handle that...then explain what the rate change is...all about framing the conversation. if you tell them first their rate went from 3.0 to 3.875 they will freak out...but if you start "
Adam Shelton : "REPRICE: 1:38 PM - Stearns Lending Worse"
John Tassios : "saw this quote from a trader pretty much sums up what MG said earlier / “But the market is still in price-discovery mode. The range is undefined. There is value around these levels, but with an unwind like this there is still a lot of confusion on where we should be.” "
Matt Sullivan : "REPRICE: 12:56 PM - Fifth Third Mortgage Worse"
Joe Moran : "the loan I locked at 10:30 at par is now costing .982. "
Joe Moran : "REPRICE: 12:36 PM - Citi Worse"
Steven M. Sims : "MND is the difference between acting and reacting, was with MMG for past 4 years, but I like Matthew's commentary "
Joe Moran : "chase repriced twice on my sheets in the last hour. cumulative total is -.737 on the 30 year. "
Patrick McCarroll : "Agree 100% Matt"
Matt Hodges : "the investment is minor, the return is significant"
Joe Moran : "REPRICE: 12:33 PM - Chase Worse"
Matt Hodges : "SMS - been with MG for 6+ years... every year i have a better year than the previous"
Matthew Graham : "ok everyone, we got our 38.95 from Sims... No more updates or alerts. I'm heading to mexico"
Steven M. Sims : "OK Matthew, I'm past my 2 week trial and now a paying client. Make me proud! :)"
Bill Laffey : "REPRICE: 12:32 PM - Cole Taylor Worse"