MBS CLOSE: More Losses, and More Reason Not To Care

I just wanted to add my two cents into the "grade the auction" requests AQ received earlier while I was nobly battling a nasty little holiday stomach virus my son was kind enough to bring home (and losing miserably).  You see, I think that the stomach virus has done the same thing to the attendance at his pre-school as the holiday season is doing to participation in the bond market.  More than half of his class was out today and the bond market was less than half it's normal volume.  The parallels are, indeed, uncanny.

Add to that the fact that more than a third of bond market volume was in 2's, BUT 2's didn't move at all after the auction and in my mind, when pressed for a grade, I'd have to say "insufficient data."  I might even go so far as to say "who the hell cares?"  I know I don't, and there are plenty of reasons you shouldn't either, not the least of which being AQ's previous discussion in MBS MORNING and beyond, on why you don't necessarily want to be messing around with lender's year end pricing strategies!

"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 square, I double checked pricing, hounded post closing to get my files shipped, 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 start to get more expensive...regardless of how the market behaves."

So do you REALLY want to look at where the market is trading?  Or can you accept that no one even knows where it's trading until the new year?  The former will cause insanity, and the latter, longevity.  In other words, as the kids say these days, get that dirt off your shoulder. 

Hopefully the underlying premise over the past week and change is clear.  Prices may move.  Rate sheets may change.  Data may still even be coming across.  It may even seem like important data like a 2yr auction.  But the fact remains that none of this "stuff" will truly be traded in a meaningful way until the new year.  And as such, nothing that's happening now really means much.  But for the masochists out there, here's today's chart anyway:

Remember the shortened week this week, and with 2's out of the way today, it's on to 5's tomorrow.