MBS OPEN: Modest Rates Recovery Before and After Data

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First off, if you use a Blackberry and have not been receiving email or have found it difficult to surf the web...don't yank the battery yet, you are not alone. RIM has confirmed another outage, the second one in less than a week! READ MORE

Now, this implies if you are a devoted MND Mobile reader or have not been back to a computer since yesterday afternoon, that you may have missed the big news I sent your way last night.

The FHA has delayed the implementation of HVCC guidelines. HERE is the story.

If you have been unable to locate the "official" notification, you are not alone, many others have emailed asking what/who was my source of this information. I responded back to all inquiries with the same response: I GET ENCRYPTED MESSAGES FROM THE FHA  WHENEVER MAJOR NEWS IS ABOUT TO BREAK. THESE MESSAGES SELF DESTRUCT ONE MINUTE AFTER OPENING.

Secret messages from HUD. Awesome right? The one I got on Monday was:

Free Candy Canes for all at:

451 7th Street S.W.,
Washington, DC 20410

HAHA...come on.

I am on the HUD mailing list! I received an email last night with the update. By the way you can get on this mailing list too. Here is a link that will help you out. What is really cool is that you can sign up your entire operation for these emails!

Anyway, onto less exciting year end trade flows I suppose.

In VERY VERY light overnight trading, the 3.375% semi-annual coupon paying 10yr TSY note moved higher in price and lower in yield.  Rates were mostly sideways in the Asian session before moving lower at the London open. Then, after reaching their best levels in over 12 hours (haha that is me making a "tight range" joke)...yields ticked higher ahead of 830am NY data.

  • Personal Spending increased 0.5% in November, this follows a 0.6% rise in October (revised lower from +0.7%) . The market was anticipating an increase of 0.6% in November, so slightly weaker than expected.
  • Personal Income increased 0.4% in November, this follows a 0.3 rise in October (revised higher from +0.2%). The market was anticipating an increase of 0.5% in November, so again...slightly weaker than expected.
  • The Personal Consumption Expenditure Price Index, the Fed's preferred gauge of inflation (READ MORE) , rose at a month over month rate of 0.2%, which is less than the October uptick of 0.3%.
  • On a year over year basis, the PCE Price Index rose at a rate of 1.5%. Compare that to the October YoY read of +0.1%.
  • The savings rate was unchanged at 4.7%
  • Spending on Durable Goods slowed considerably, from +2.6 in Oct to +1.1 in November
  • Spending on Non Durable Goods picked up, from +0.3% in Oct to +1.5% in November

Here is a table summarizing the data:

The month over month read on inflation was weaker than expected...which is supportive of corrective bid in bonds! (Supportive of position squaring!) More than anything this is just an extension of overnight directionality. No reason to do otherwise...especially in SUPER THIN TRADING CONDITIONS.

After the data....

Stock futures are near their session lows, but not far off their session highs either (tight range). The dollar, which fell to session lows ahead of the 830 data, has rebounded and is trying its darndest to break overhead resistance at 78.15 (the DXY). The NYMEX crude oil contract is about $0.60 more expensive at $75.85, and Gold is up a few bucks at best. Yawn...

In the rates market the long end of the yield curve is making up some lost ground. The 2s/10s curve is off new record wides, currently 2bps flatter at 282bps.

10s are +0-09 at 97-05 yielding 3.721%. I cannot stress this enough, this move is in VERY LIGHT VOLUME, which I pointed out might be to our benefit in MBS AFTERNOON.

And last but not least..."rate sheet influential" MBS prices are higher to start the session.

The FN 4.0 is +0-07 at 97-03 and the FN 4.5 is +0-06 at 100-06.

In the grand scheme of recent price losses, this is a modest recovery. With that in mind, a reminder:

From a loan pricing standpoint. I recall this time of year as being one of my favorite for determining rate sheet rebate. I viewed it as so...

Most borrowers have already locked in  and many have actually already closed. Who wants to deal with a loan closing at this time of year?  My main goal was to limit the amount of work I had to do over the next 10 days. I made sure all my positions were squared, double checked the system to make sure pricing was reported correctly, hounded post closing to get my files shipped to servicers, and started working on monthly P&Ls. My eyes were generally off the market as my mindset was " GET WORK DONE, LEAVE THE OFFICE ASAP". Processors, UWs, Closers, Shippers, and Accounting were all in the same boat. (Compliance always cared)

This was not an originator friendly environment. To avoid extra work and disruption...I always baked a few extra bps into my rates. My innate sense of capitalism took over. This sentiment was shared up and down the mortgage pricing supply chain. Not matter how the market was moving....primary/secondary market pricing spreads were getting wider.

Plain and Simple: Don't be surprised or angry if rate sheets do not reflect an uber-aggressive lock desk...

Consumer Sentiment at 955am. New Home Sales at 10am. Treasury auction terms at 11am. (2s,5s,7s).