A trio of originator friendly "tapebomb" hit news wires at 10am. The most recognizable surprise:
CONSUMER CONFIDENCE PRINTED AT A 10 MONTH LOW! CONSUMER PRESENT SITUATION INDEX AT LOWEST LEVEL SINCE FEBRUARY 1983!! CONSUMER EXPECTATIONS AT LOWEST LEVEL SINCE JULY 2009!!!
Consensus estimates called for a read of 55.0 vs. last month's revised higher print of 56.5. This was much worse than expected.
Below is a table recapping the results. The labor market outlook worsened and so did income expectations. Looks like Mr.Main Street is starting to get a little frustrated with the lack of economic recovery progress that is being made since stabilizing. Less people think more jobs will be available in 6 months. Many more people think less jobs will be available in 6 months.
At the same time the FDIC announced that the PROBLEM BANK LIST grew 27% from 552 banks to 702 banks in Q4 2010. This is the highest number of banks on the list since 1993. The FDIC deposit insurance fund fell to -$20.9 billion from -$8.3 billion Q3 09. Although the industry was still able to produce a profit of $914 million, the majority of those profits were made at the largest banks.
At the same time again, the NAR told us they see no meaningful recovery in commercial real estate before 2011. Lawrence Yun, Chief Economist at the NAR says, "Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher......With the job market expected to turn for the better later this year, we'll see rising demand for office and warehouse space, but that isn't likely before 2011."
THIS IS A TRIO OF BOND MARKET FRIENDLY FUNDAMENTAL EVENTS
Stocks immediately broke the 1,100 psychological and technical pivot point. 1,095 us being tested. If stocks break this support level the next target is 1,086.
Here is a look at sector performance:
The 3.625% coupon bearing 10 year Treasury note is +0-18 at 99-05 yielding 3.725%. We moved a long way in a short time to a very specific price point....this move was very technically driven .
Check out the volume spike that took the 10 year TSY note contract up to 117-31. This is a high traffic pivot point...unfortunately the price rise was led by SHORT COVERING...which has since stopped out.
Regardless of why we got to where we are at the moment, MBS prices are considerably higher...REPRICE FOR THE BETTER worthy in fact...which you have already started seeing.
The FN 4.0 is currently +0-16 at 97-24 yielding 4.215% and the FN 4.5 is +0-13 at 100-24 yielding 4.419%. The secondary market current coupon is 4.378%. The current coupon yield is 65.3 basis points over the 10 year TSY note yield and 56.3bps higher than the 10 yr swap rate.
BANG BANG on 100-24. The FN 4.5 loves touching this price point!
NEXT EVENT: $44 billion 2 year notes at 1pm
While 10s were oversold and technically due a test of lower yields, the market is still short. This means many market participants want yields to rise so they can book profits again, this implies there is limited room for more upside price action as many accounts will be less willing to play along (unless the move is strong enough to force out more short covering, which most of which was done this AM).
I am not saying lock your loans now, more or less the message is:
If you got a reprice for the better, be defensive of a poor auction or a recovery bounce in stocks. Register your loans so you can lock in if this originator friendly rally reverses course.