Friday 6/13/08 ....... Jason Voorhees at Bay

By: Matthew Graham •
In A Word:

Remember Jason?  The Hockey Mask Guy from Friday the 13th?  Considering we're hovering near unchanged, it's safe to say he's at bay for now (and maybe he's at "the bay," as opposed to his normal haunt, the lake, which is good since we're at the lake!).  Either way, Inflation Jason took a swing and a miss this morning with his machete of price panic.  Maybe he's the Boogie Man we've all been so concerned with?! 

The Why:

The much anticipated inflation gauge, the CPI report, was released this morning with "as expected" results, easing concerns of runaway inflation.  As we know, inflation is the mortal enemy of MBS and other bonds.  The more we see, the higher rates go, and indeed it has been the key factor pushing rates higher.

To Lock or Float?

A cautious intraday float will likely net you some coin.  Lenders went into "uber-hedge" mode yesterday as they played our downward heavily on the come, pulling out an extra .125 to .375 YSP beyond their normal pricing margins versus MBS.  If we can but hold steady this morning, we will get much better rates today than yesterday afternoon.  Be sure to refresh the blog often, keep an eye on 5 and 10 year treasuries--if the yield rises more than a couple points, it may be time to lock.  Keep an eye out for a stock rally as that may put pressure on bonds.  Whatever the case, be vigilant if you float, but floating will likely pay off.

The Numbers:

 

6.0% FNMA OTR is UP (yes, UP) by a scant 1/32nds (4/32nds in Freddie Mac Issues)

5.5 FNMA OTR UP by a more significant 7/32nds, 6.5's are closer to par, they are up 3/32nds

Here's a spooky Friday the 13th Graph for you today (it is actually mostly Friday the 12th, but it shows you what has happened between yesterday and 10:15AM today.  As you can see, we're already back at the lower portion of yesterday's levels (but not the lowest levels of late afternoon):

 

The News:

  • Consumer Price Index
    • Core Rate (excludes food and energy) exactly as expected at .2%
    • Headline Rate 1 tick higher than expected at .6%
    • The markets like it.  We had been gearing up to be surprised for the worse
  • Consumer Sentiment
    • Came in at 56.7 versus expectations of 59.8
    • This was a nice little "boost" to MBS when this was released just now.

Conclusion:

Yes, it is certainly scary when we visualize our friends (MBS) getting approached by some guy with a machete and hockey mask in a less than a "just want to be friends" sort of way.  But calling on the power of "6 degrees of Kevin Bacon" (yes, he was in the movie), it is possible to fight off these super-villains from time to time.  But just like the movie, and every other movie of it's ilk, you can never count on this being the last time they will show up.  In fact, you can all but guarantee a sequel, and soon!  Great parallel actually, if a bit morbid.  Then again, many of us would have preferred a machete to the stomach over the amount of money lost this week. 
 
It's shaping up to be an "up" day for MBS.  Float with the gains, but be aware of the volatility.  If you are leaning towards locking, cross reference this morning's rates with yesterday's.  Look for your rate to be at yesterday's levels from about 11AM Eastern before locking.  We might not get there, but if we get worse, you'll hear here first.  Basically, if you can slowly, calmly, and safely make it back to "the lake," go for it.  You just never know when these horror movie villains are going to pop out of nowhere.