Thursday 7/24 ... And There Was Much Rejoicing...

By: Matthew Graham •

No matter how up to speed you are on Monty Python allusions, there was and is "much rejoicing" at this hour as MBS are showing yet more evidence that we did, in fact, bounce off the lows of the year.  It's more likely than not that we will not go below them again.  With many analysts labeling recent stock market strength as a "bear market bounce," the historically wide spreads of MBS versus treasuries pulling the "rubber band" to its limit, and the likely passage through the senate of the FNM/FRE bill, the MBS market--the languishing bull that it was--appears to have undergone the Darwinian adaptation of "growing wings."  It's not clear how quickly these wings can grow as far as supporting the bull's ability to fly, but now, for the first time in several weeks, it appears that we will see this bull (MBS) fly well before any of it's porcine cousins.  This morning, the little tyke has gotten out of bed before the rest of the barnyard and has been leaping and flapping with all it's might.  It's only a matter of time before it becomes accustomed to its new appendages and vaults skyward with sober determination.

The Numbers

6.0's are up 15 ticks at 99-30

6.5's are up 12 ticks at 102-05

5UST's are up 11 ticks at 99-20 / 3.45%

10UST's are up 15 ticks at 98-09 / 4.09% yield

DJIA is down almost a percent at 11549

SandP is down almost 5 points to 1277

 

The News

  • Fannie/Freddie "bailout"
    • passed the house yesterday and appears to be on the fast track through the senate and onto good 'ol Dubya's desk.  Hopefully this is one of the 3 days of the week he's working
    • The reassurance provided by the bills progress so far should only see more support when it is signed into law.
  • Jobless Claims
    • Rose 34k to 406k.  Continuing claims dropped a bit, so the report is mixed
    • but traders seem to have been more influenced by the headline figure as we had a Karch Kiraly-like spike after the release.  (except Karch's spikes tend to move down whereas MBS was in the opposite direction.
  • Crude Oil
    • Finally found a reversal point after 7 days of declines.  This is taking a major toll on markets today.
    • Analysts are calling the recent stock market improvements a Bear market bounce. 
    • To the extent that crude affects inflation in the long term, this isn't great news for MBS, but we almost never see oil have a direct impact on MBS.  Its effect on stocks is much more important, and with that manifestation pushing stocks down today, bonds are finding more buyers this morning
  • Existing Home Sales
    • Brace yourselves!  I know you're not accustomed to receiving any negative data on housing this year, but I feel obligated to tell you that this report shows a 2.6% drop in existing sales.  I know, I know.  It is a surprise to all of us.
    • It would have been even lower if not for multi-family homes mitigating the losses (hmm... imagine that... It's almost as if investors like to buy at the lows...)
    • overboard sarcasm aside, this is simply "more of the same" for home sales.  No matter how low analysts set their estimates, they and indeed the financial community in general cannot seem to understand just how bad things are.
    • This wouldn't normally hurt MBS at all and today is no exception, but it usually also doesn't help very much.  Today appears to be a slight exception as we've gotten a slight bump from the report.  Hey!  We'll take whatever we can get!

The Call

LOCK/FLOAT :  FLOAT The water is warm, though the currents are swift

DILIGENCE:      MEDIUM If you have a short term closing and are trying to time the market, and intraday lock could serve you well, so your diligence meter will be "extreme" to try to time when lenders have passed on as much of the gains as they can today.

A quick recap of yesterday's call: 

        "Whatever the case, we're at least floating today for now.  As for the broader implications of this potentially being a turning             point, just keep doing your rain dances..."

I just wanted to extend a heartfelt "thank you" to all of those who dug your ceremonial headdresses out of the war chest, lit your bonfire, and danced for rain, whooping and hollering as if your life depended on it.  In some sort of round about way, your life does depend on it.  And at least in this battle, your rain dances have led to victory.

Switching analogies, today's early gains, stock market buzz, the "trampoline" provided by annual lows, the "bungie cord" of historically wide spreads, and housing bill warm fuzzies could be enough to get our shy little bull--undeveloped wings though he may have--into the air and able to climb higher.  That remains to be seen (still), but for now at least, it sure is heartwarming to see him trying to fly, even if he has to return to earth and regroup.

You know how it goes... Lenders are always quick to take away YSP in a declining market and slow to return it in a rising environment.  Much of your decision making process (as always) will depend on whether or not you are already in process or captive with a particular lender,  or if you can still pick and choose.  Now is a time where you must go back to the previous few days blog posts and compare you YSP to the MBS prices listed on this site previously.  Who is pricing their sheets today proportionate to our MBS gains?  They are the most aggressive and the best bet for a short term lock.  Some of them even price "on the come" in that they will increase .5 YSP today even if we don't quite have 16/32nds in price improvements at the time they price.  If this occurs, and if we see prices fall today, those lenders are a good bet to lock short term.

Anything beyond a few days though, locking has a better than 50% chance of costing you money.  Of course there's never a way to know for sure.  We could get some "tape-bomb," unexpectedly bullish news for stocks, the rearing of the inflation boogie man's ugly head, or one of any number of other unforeseen variables.  All we can do is keep you up to speed on exactly where prices are going intraday and collectively (our advice plus your "gut" and experience) draw our best conclusions about future direction.  Indications now are for probably continued strength.  We'll let you know if that changes.  But whatever the case, please keep doing whatever rain dances you did yesterday.  The ground is moistening, but I'm sure we'd all be happiest with an unprecedented flood.

Enjoy your day!