MBS OPEN: Rates Higher Ahead of FOMC

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Recap of Yesterday

  • FN 4.5 ends day +0-04 at 100-18+. Yesterday is only 2nd green day in last 10 sessions for "rate sheet influential" MBS coupons (we've been mostly sideways /range bound though).
  • Rate sheet rebates slightly worse, mortgage rates still holding near four month lows
  • MBS trading flows relatively quiet yesterday. The Fed easily absorbed light supply from originators, money managers were net sellers,  hedge funds day trading the market.
  • MBS/TSY yield spreads slightly wider
  • 5.0s and 5.5s have been spotlighted coupons so far this week.
  • MBS Ninja discusses The Fed's Exit from the Mortgage Market
  • We discuss the Mortgage Market Recovery...or lack thereof
  • $43billion 2yr note auction stops at 1.034%. Bid to Cover 3.23%...highest since September 2007
  • Curve: 2s/10s slightly tighter after auction....then falls from 248bps to 242bps overnight.  5s vs. 10s flatter (tighter) after auction
  • Fed to start reverse repo program?Will they sell assets from balance sheet to reduce reserves in banking system
  • Fannie announcement 09-m29 changes minimum credit score requirements;mortgage insurance coverage requirements, including a new minimum level of coverage and corresponding loan-level price adjustment (LLPA), retirement of Lower-Cost and Reduced MI options, and changes to financed mortgage insurance; Changes to pricing for Flexible mortgages and improved pricing for Expanded Approval recommendations, and changes to EA special feature codes (SFC);Retirement of biweekly mortgage loans; and changes to SFC requirements for MyCommunityMortgage® (MCM®) and other transactions.

So far this AM...

  • SHANGHAI -1.89%, HANG SENG -0.49%, FTSE +0.47%, CAC +0.31%, DAX +0.285, JAPAN OUT ON HOLIDAY
  • S&P futures higher...stock uptrend still intact
  • market positioning (pun intended) before the auction and FOMC
  • unfortunately, getting to that neutral position means going back towards 3.50 in the 10yr this AM
  • "Rate sheet influential" MBS are down 7 ticks thanks to that yield curve preparation.
  • Yield spreads slightly tighter into downtrade
  • Unless 100-11 to 100-12 in MBS or 3.50 in UST10YR are meaningfully violated this AM, then it’s all just the same old “technical trading within a range”
  • 2s vs 5s 6bps flatter from yesterday. 5s vs. 10s steeper
  • FOMC at 2:15.  No one expecting significant change.  (see talk above about reverse repos though)
  • But as we all know, at least a small portion of bond market sentiment prepares for bad news with concessionary selling.
  • Assuming expectations are met, those shorts can be unwound a bit and no news may in fact be good news for bonds.
  • MBA index RISES 12.8% with GNMA having its largest piece of that pie in 20 years
  • Other than Oil Inventories, no other data until auction and FOMC
  • Dollar slightly stronger at $76.14. EUR/USD at 1.478. Oil sideways. Gold sideways
  • LIGHT VOLUME...slow trading ahead of FOMC

Here is FN 4.5 two day...

MBS, TSY, LIBOR QUOTES

$40 billion 5yr TSYs at 1pm

The 10yr Treasury note is at the high side of the recent range, currently trading near 3.50%. The FN 4.5 is +0-06 at 100-13. If history holds the 10yr will bounce at 3.50 and "rate sheet influential" MBS coupons will reverse course at 100-13.

RANGE BOUND UNTIL THE RANGE BREAKS DOWN...

 

PS...there was a girl-girl fight about 10 ft from me at the Nationals/Dodgers game last night. HAHA...im sorry for laughing but it was funny. Apparently one girl spilled something on the other....which warranted an all out beatdown. The best part: the boyfriend of the young lady who took the straight right. He was really torn on how to react. You could tell he was trying not to cross the male/female physical abuse line, but was angry because is gf was taking rabbit punches in the mouth. Kaycie asked..."Do you think we should do something?"...My response: "Yeh. Take pictures". Haha...good times good times.