MBS RECAP: 1/18/2011

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MBSonMND: MBS RECAP
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FNMA 3.5
95-05 : -0-10
FNMA 4.0
99-04 : -0-10
FNMA 4.5
102-10 : -0-07
FNMA 5.0
104-30 : -0-07
GNMA 3.5
95-29 : -0-07
GNMA 4.0
100-09 : -0-10
GNMA 4.5
103-11 : -0-09
GNMA 5.0
106-01 : -0-07
FHLMC 3.5
94-32 : -0-11
FHLMC 4.0
98-31 : -0-09
FHLMC 4.5
102-05 : -0-07
FHLMC 5.0
104-24 : -0-06
Pricing as of 4:00 PM EST
Market Updates
3:36PM  :  Little Changed In After Hours Action
If anything, the bond market is a bit stronger after the 3pm close with 10's down to 3.3564. MBS FNCL 4.5's are at 102-10. Reprices for the better are still possible.
3:05PM  :  Low Volume Notwithstanding, At Least We're Seeing A Positive Break
What had been a brick-like wall at 3.37 has collapsed in recent minutes and the late day action in 10yr benchmarks makes the post-sell-off trade look like a trend channel rather than a horizontal pivot. Scattered reprices for the better are being seen from lenders that priced conservatively or "took it away" aggressively. Additional reprices for the better could be slightly more likely if current levels or higher are held.
2:33PM  :  Now Sideways And In Significantly Lower Relative Volume
10's are drifting sideways right on the 3.37+ pivot as 10 minute volume totals in futures are staying mostly under 10k (versus an average of 45k earlier in the day. This is keeping FNCL 4.5's under 102-10, a level they'd need to break by a bit to see reprices for the better.
1:44PM  :  10yr Note Retesting Morning Pivot
This could be good or could be frustrating for bonds depending on where the 10yr goes next. A previous update discussed the pivot point from this AM at 3.374. 10yr yields are back again for a 2nd test after the first failed test bumped yields back up close to 3.34. Either way, both MBS and treasuries have made moderate gains in the last 15 minutes, relieving any building concerns about an impending break to even weaker levels today.
1:30PM  :  Tradeweb: Talk of bad Treasury trade on system "false"
(Reuters) - Electronic trading platform Tradeweb said on Tuesday that talk of a large erroneous trade of U.S. government securities on its system that sparked a sudden market sell-off is wrong. U.S. government bond prices dropped suddenly in early trading, which led to speculation of an erroneous trade on the Tradeweb system. "Reports of a multibillion dollar customer trade error on Tradeweb this morning are completely false. Indeed, Tradeweb has a number of safeguards and warnings incorporated into its electronic markets to prevent 'fat-finger' errors of this type," the company said in a statement.
1:27PM  :  Continuing To Grind It Out At The Lows Of The Day
FNCL 4.5's are ticking between 102-06 and 102-07; the lowest they've been since 11:30am. Benchmark 10yr notes are managing to hold a bit lower than their highest yields today which is at least somewhat of a promising sign for MBS holding their lows, or close to them.
12:53PM  :  ECB's Weber Adds Skeptical Note To Inflation Outlook
(Dow Jones)--Deutsche Bundesbank President Axel Weber Friday warned that inflation in the euro zone may not be as short-lived as currently assumed, and also stressed that banks should be allowed to fail as taxpayers won't agree to bail them out a second time. Weber, a member of the European Central Bank's governing council, told a university audience that "risks to the medium-term outlook for inflation, which are so far still broadly balanced, could well move to the upside." As reported, consumer inflation in the euro zone rose to 2.2% on the year in December. ECB President Jean-Claude Trichet said at his monthly press conference Thursday that the development was largely due to volatility in energy prices and likely to be short-lived, a message that Weber repeated Friday, albeit with an element of skepticism. He said that the assumption of a moderation in price pressures is as yet only an assumption.
12:30PM  :  Bearish Bounce On Morning Pivot Suggests Retest Of Lows
10yr benchmarks originally backed up to 3.374 this morning and corrected nearly to 3.34. After their second move up to nearly 3.41, yields once again corrected lower, but have recently bounced on the morning pivot point at 3.374. This resulted in yields making another run up to near the highs, but so far, they are stopping a bit short of that.
11:52AM  :  Geithner, HUD's Donovan Support Mortgage Servicing Changes
(Dow Jones)--U.S. Treasury Secretary Timothy Geithner and U.S. Housing and Urban Development Secretary Shaun Donovan said Tuesday they support an effort to create new compensation for mortgage servicers, calling the current system "broken." Those companies, which collect mortgage payments and distribute them to investors, have been battered by paperwork errors and widespread consumer complaints. As a result, the Federal Housing Finance Agency said it directed Fannie Mae (FNMA) and Freddie Mac (FMCC) to work on an initiative to develop the payment system with the Department of Housing and Urban Development.
11:47AM  :  Homebuilder Confidence Unchanged in January
Builder confidence in the market for newly built, single-family homes held unchanged at a relatively low level of 16 for a third consecutive month in January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. While the HMI components gauging current sales conditions and sales expectations for the next six months both held steady from the previous month, at 16 and 25, respectively, the component gauging traffic of prospective buyers edged up a single point to 12 in January. HMI scores rose by one point in the Midwest and four points in the West in January, to 14 and 15, respectively. Meanwhile, HMI scores fell two points in the Northeast and one point in the South, to 20 and 17, respectively.
10:36AM  :  ALERT: Reprices for Worse or Delayed Rate Sheets Possible
After failing to confirm a breakout from the recent range, benchmark 10-year yields have spiked higher in an aggressive manner. This illustrates the release of stored energy as 10s have shot 13bps higher from opening levels in a matter of minutes which has pushed MBS prices sharply lower. If your lender was quick to price, you may see reprices for the worse. If you lender has not priced, you may see delayed releases of rate sheets.
10:12AM  :  Revisiting A Cardinal Rule Of Ranges
"The range is the range, until it's not." Otherwise known as "play the range until the range plays you." No matter how you view the causality or implications of this morning's sharp spike weaker in bonds, we'd highly encourage anyone viewing this morning negatively to pull up the 1 month 10yr chart, and see the range that has been in play since mid December.
9:49AM  :  November TIC Data: Foreign Investors Net Buyers of Longer Dated Debt
(Dow Jones)-- Overall, foreigners were net buyers of long-term U.S. financial assets in November, according to the monthly Treasury International Capital report, known as TIC. Among all foreign investors, net purchases of U.S. Treasury notes and bonds totaled $61.7 billion, compared with net buying of $24.7 billion in October. Private foreign investors bought a net in $51.5 billion Treasury notes and bonds, after buying a net of $25.9 billion the previous month. The closely watched figure of net long-term securities transactions showed total buying of $85.1 billion in November, after purchases of $28.9 billion the month before. China's holdings fell $11.2 billion to $895.6 billion, following net buying of more than $23 billion in October, its largest position in nearly a year. The data follows a rise in the value of China's foreign-exchange reserves by $199.3 billion in the fourth quarter, bringing total reserves at the end of 2010 to $2.85 trillion. Meanwhile, Japan continued to be a net buyer of Treasurys, notching another high level in November and continuing to threaten to overtake China as the top foreign holder. Japan remained the second-largest holder of Treasurys, lifting its holdings to $877.2 billion from $875.0 billion in October.
9:22AM  :  ALERT: Bonds Weakening To Test Friday's Lows
In recent minutes, bond prices have declined nearly to Friday's worst levels. This has 10yr notes inching over 3.33 and MBS FNCL 4.5's down to 102-18. If you have access to a lender who is already out with rates this morning (rare), there could even be potential for reprices for the worse.
9:00AM  :  Yields Lower Overall This Morning, But Data Not Enough For Move Lower
10yr notes started the domestic session in the 3.28 range but moved to test 3.30 following Empire State Survey data at 830am. FNCL 4.5's also began the day stronger, but lost a few ticks at 830, no down to 102-21. Both of these are well within Friday's range and so far, no decidedly directional tone has been set for the day.
8:59AM  :  Citi Moving Forward with GSE Repurchase Claims
RTRS-CITI CFO GERSPACH: WE'RE MOVING FORWARD WITH GSE MORTGAGE REPURCHASE CLAIMS. THINKS THEY'VE GOT ADEQUATE COVERAGE FOR MORTGAGE REPURCHASE EXPOSURE
8:35AM  :  FHFA Considering Alternative Compensation Plans for Servicers
The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to work on a joint initiative, in coordination with FHFA and the Department of Housing and Urban Development (HUD), to consider alternatives for future mortgage servicing structures and servicing compensation for their single-family mortgage loans. Currently, a servicer’s compensation is generally based on a minimum servicing fee that is part of the mortgage rate, which decreases the flexibility necessary for optimal servicing of non-performing loans from both the borrowers’ and guarantors’ perspectives. The current servicing compensation structure also results in the creation of a mortgage servicing right asset, which is difficult to manage and separate from a servicer’s core competency of servicing mortgage loans...
8:32AM  :  NY FED'S EMPIRE STATE INDEX +11.92 IN JAN (CONSENSUS +13.00) VS REVISED +9.89 IN DECEMBER
NY FED'S EMPIRE STATE INDEX +11.92 IN JAN (CONSENSUS +13.00) VS REVISED +9.89 IN DECEMBER // NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT +8.42 IN JAN VS -3.41 IN DECEMBER // NY FED'S EMPIRE STATE NEW ORDERS INDEX +12.39 IN JAN VS REVISED +2.03 IN DECEMBER // NY FED'S EMPIRE STATE PRICES PAID INDEX +35.79 IN JAN VS +28.41 IN DECEMBER // NY FED'S EMPIRE STATE SIX-MONTH BUSINESS CONDITIONS INDEX +58.95 IN JAN VS +48.86 IN DECEMBER
8:24AM  :  Two Must Read MND Blog Posts
Stored Energy: The Sideways Freight Train is Running Out of Room: http://www.mortgagenewsdaily.com/mortgage_rates/blog/194422.aspx Mortgage Rates: Varying Degrees of Opportunity Presented: http://www.mortgagenewsdaily.com/consumer_rates/194425.aspx
8:21AM  :  EU Leaders Show No Urgency to Address Debt Crisis
Bond vigilantes should soon attack this approach... (Reuters) - European finance ministers agreed on Tuesday to take their time over beefing up the euro zone's rescue fund and to publish new stress tests on the region's shaky banks in the second half of the year. The go-slow approach could test the patience of investors, spooked by the euro zone debt crisis, who sold off peripheral countries' bonds this month until the European Central Bank intervened to steady markets. Going beyond last July's flawed exercise, which failed to expose Irish banks' frailty, EU ministers agreed to include targets on liquidity in new, tougher tests of banks' ability to withstand financial shocks to be conducted by the end of May, with results in the third quarter, EU presidency sources said. "The message is that the tests have to be much more stringent and credible," one source said
8:17AM  :  Chinese President Visits U.S. as Tensions Rise
(Reuters) - Chinese President Hu Jintao on Tuesday flew to the United States for a state visit buffeted before he even lands by senior U.S. senators demanding tough action against China for "manipulating" its currency. Hu said earlier this week he would not accept U.S. arguments the yuan was undervalued. The latest sparring over the currency underlines tensions over trade that will likely dominate Wednesday's summit in Washington between Hu and U.S. President Barack Obama. Their talks are expected to focus on a host of other thorny issues, from rebalancing the global economy to dealing with North Korea. Analysts are calling the visit the most important by a Chinese leader in 30 years given China's growing military and diplomatic influence and its emergence as the world's second largest economy after the United States.
8:16AM  :  Citigroup posts $1.3 billion quarterly profit
Reuters) - Citigroup Inc posted a $1.3 billion quarterly profit on Tuesday, as the third-largest U.S. bank rounded off a year of recovery from the financial crisis. The company reported a net profit of 4 cents per share for the fourth quarter, compared with a year-earlier loss of $7.6 billion, or 33 cents per share.
8:15AM  :  Obama announces review of government regulations
(Reuters) - President Barack Obama said on Tuesday he would order a government-wide review of regulations with the goal of eliminating those that hurt job creation and make the U.S. economy less competitive. In an op-ed piece in The Wall Street Journal, Obama said some government regulations have placed "unreasonable burdens on business -- burdens that have stifled innovation and have had a chilling effect on growth and jobs.
Featured Market Discussion
Adam Quinones  :  "NPLs"
Matt Hodges  :  "your comment indicated closed & in default loans"
Adam Quinones  :  "in that regard...with GSE reform looming. This is a hint that we're about to see the good bank/bad bank set up. Freddie = good bank. Fannie = bad."
Adam Quinones  :  "Freddie is settling what they can and moving on. Fannie is prepping for a long haul, review each loan, one by one strategy"
Adam Quinones  :  "Fannie is upping their staff in a hurry"
Adam Quinones  :  "Freddie is cutting down their putback crew, the folks who decide whether or not to force lenders to buyback a loan"
Adam Quinones  :  "gonna throw this out there for you guys...."
Chris Kopec  :  "5/3 does a nice job on jumbos as well."
John Rodgers  :  "Suntrust Key program is killer for jumbos"
Christopher Max  :  "Astoria would work on that one. "
Jason Wilborn  :  "I hear US Bank and GMAC have had excellent jumbo pricing as of late"
Chip Harris  :  "Jill, I only see ARMS on Flagstar's Jumbos."
Chip Harris  :  "Not conforming Jumbo. It's an actual Jumbo. I am about .5% higher in rate."
Alan Craft  :  "Are you sure it is not conforming high balance?"
Alan Craft  :  "That is likely portfolio Chip. Will be hard to get anywhere near it."
Jill Statz  :  "Chip...Flagstar just came out with there Jumbo's might want to check them out"
Chip Harris  :  "Anyone seen any decent 30 year fixed jumbo rates out there? I have a client that is getting offered 5.25% from BBVA Companss with an aPR or 5.353. 650K purchase 20% down, 800 FICO."
Adam Quinones  :  "http://www.mortgagenewsdaily.com/mortgage_rates/blog/187013.aspx"
Adam Quinones  :  "December 7th: Brighter Outlooks or Year End Volatility? Watching the Bond Market Repeat History"
Jason Wilborn  :  "have you done any overlays for dec 2010 - jan 2011"
Brett Boyke  :  ""Reports of a multi-billion dollar customer trade error on Tradeweb this morning are completely false. Indeed, Tradeweb has a number of safeguards and warnings incorporated into its electronic markets to prevent 'fat-finger' errors of this type." "
Adam Quinones  :  "since the downtrade, production MBS coupons have moved less than the Raven's offense on Saturday"
Adam Quinones  :  "JW...Joe Lavorgna's commentary for Wednesday: As we discuss in more detail in the current US Economics Weekly, resurgent revenues are helping to underpin state and local finances. State and local governments derive the bulk of their revenues from property (37%), general sales (23%) and individual income taxes (20%). Over the four quarters ending Q3 2010, total state and local tax revenues are up 5.2%, a decent gain. But some of this increase is distorted by higher rates on property, where revenu"
Victor Burek  :  "flagstar reprice"
Adam Quinones  :  "I follow SIFMA when it comes to Munis: http://www.investinginbonds.com/news.asp?id=3172&catid=36"
Adam Quinones  :  "Market Summary Worst December for Municipals in 20 Years MMA’s municipal price index posted a -2.8% loss, surpassing the prior largest losses for December in 1996, 2001 and 2006. The month’s poor performance followed a historically weak Novem-ber so that municipal investors were left confused into year-end. Similar to periods when December was unable to follow its sea-sonal positive bias, the combination of a perceived change in FOMC monetary policy, an improving economy, credit concerns and a"
Jason Wilborn  :  "we would have mortgage professionals throwing themselves out of first story floors and wallowing in the grassy knoll outside their office"
Jason Wilborn  :  "good thing mortgage rates arent based on Muni bonds"
Adam Quinones  :  "sends $$$ into MBS for sure"
Jason Wilborn  :  "With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress. … “[Last week] A New Jersey agency was forced to cut the size of a bond issue by about 40 percent because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citing market turmoil.”"
Adam Quinones  :  "three housing reports, US/Chinese Summit in DC, Bank Earnings, Eurozone Crisis (as always)\"
Adam Dahill  :  "Hey everyone, looks like today is a bust, what else is on the calendar this week?"
Brett Boyke  :  "bbt repricing"
Jason York  :  "yes they did, it was right after opening rates were sent"
Matt Hodges  :  "does anyone know if WF repriced this AM? I have a 10:25 quote, which I assume is reprice"
Brian Spiegel  :  "great info in that link about MBS...helps to understand this much better"
Adam Quinones  :  " 11:13 18Jan11 DJN-DJ CITI CFO: 2011 EXPENSES EXPECTED TO BE AT $48B TO $50B 11:15 18Jan11 DJN-DJ CITI CFO: NOT 'SIGNIFICANT' CLAIMS FOR PRIVATE LABEL MORTGAGE PUTBACKS "
Adam Quinones  :  "the latest..."
Adam Quinones  :  "Andy we shared this micro post this AM: Citi Moving Forward with GSE Repurchase Claims RTRS-CITI CFO GERSPACH: WE'RE MOVING FORWARD WITH GSE MORTGAGE REPURCHASE CLAIMS. THINKS THEY'VE GOT ADEQUATE COVERAGE FOR MORTGAGE REPURCHASE EXPOSURE "
Adam Quinones  :  "we like to use the 10 year note for technical analysis as it provides a clear view of directional bias"
Adam Quinones  :  "but MBS dictate loan pricing"
Adam Quinones  :  "directionally yes... as in yields higher or lower"
Brian Spiegel  :  "so the 10yr will give us a good idea of how the other markets might be traded?"
Adam Quinones  :  "in fact MBS tend to influence TSYs more in a selloff whereas TSYs influence MBS more in a rally"
Adam Quinones  :  "they provide directional guidance but there is not a 100% correlation"
Adam Quinones  :  "Treasuries are the risk free benchmark for all other debt assets"
Adam Quinones  :  "yes it does...we call it the benchmark guidance giver"
Adam Quinones  :  "not that I know of"
Adam Quinones  :  "Citigroup 46% Gain Masks Flawed Mortgages Freddie Mac Calls Not Acceptable: http://www.bloomberg.com/news/2011-01-18/citigroup-46-gain-masks-flawed-mortgages-freddie-mac-calls-not-acceptable.html"
Brian Spiegel  :  "does the 10yr note affect the 4.5 at all?"