MBS RECAP: Lows of the Day

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MBSonMND: MBS RECAP
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FNMA 3.5
93-26 : -0-13
FNMA 4.0
98-01 : -0-13
FNMA 4.5
101-17 : -0-08
FNMA 5.0
104-13 : -0-06
GNMA 3.5
94-29 : -0-12
GNMA 4.0
99-20 : -0-09
GNMA 4.5
102-29 : -0-07
GNMA 5.0
105-26 : -0-06
FHLMC 3.5
93-20 : -0-14
FHLMC 4.0
97-27 : -0-12
FHLMC 4.5
101-11 : -0-08
FHLMC 5.0
104-05 : -0-06
Pricing as of 4:01 PM EST
Afternoon Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard .
3:35PM  :  HUD Comments on Risk Retention Proposal
HUD Secretary Shaun Donovan issued the following statement upon release of the proposed risk retention rules: “The goal of the proposed rule released today is to provide clarity and rules of the road to the securitization markets. The proposed rule is one part of the Administration’s goal of bringing private capital back into the housing finance system. Getting this right is critical. With the financial crisis, we saw how bundling and packaging mortgages to sell on Wall Street with no accountability helped lead to the erosion of lending and underwriting standards that fed the housing boom and deepened the housing bust. The Dodd-Frank Wall Street Reform Act requires that securitizers or originators have ‘skin in the game’ by retaining at least 5 percent of the credit risk and the rule proposed today sets out options to accomplish that mandate. Importantly, the rule seeks to define qualified residential mortgages - the loans that would not be subject to the risk retention requirements. Much debate will center on the size of down payments. While there is no question that larger down payments correlate with better loan performance, down payments only tell part of the story. That's why we have laid out two alternatives, one requiring a 10 percent down payment and another requiring 20 percent. We look forward to comment from stakeholders on the relative merits of these choices, so that we strike the right balance between managing risk and maintaining access to safe, responsible homeownership.”
3:13PM  :  Numerous Reprices foe Worse, but Bonds Stabilizing
After actually breaking above 3.50 between 1:30 and 2:00pm, 10yr yields rallied back into the 3.48's / 3.49's for the 3pm official close. These are the highest yields since 3/8/11 and the 3pm mark and falls within a range of yields that have seen several support and resistance bounces since December. FNCL 4.5's have zoned in on a 101-17 level for the PM hours and in a consolidating range. Due to tightening versus treasury benchmarks, this is NOT as low as the 101-13 seen yesterday, and roughly in line with the majority of yesterday morning's weakness.
1:19PM  :  ALERT: Reprices Become Highly Likely as Benchmarks Break Support
10yr yields tested their previous high yields of the day and broke higher, currently at 3.493. FNCL 4.5's briefly ticked down to 101-15 and are now holding at 101-16. Reprices for the worse are highly likely if you haven't seen them yet, and if that is indeed the case, you're looking at larger adjustments than mere .125's seen earlier today.
1:12PM  :  Initial Reaction to Auction Leaves Yields Elevated and Reprice Risk High
If you have not yet seen a reprice for the worse, they remain likely. 10yr notes are at 3.483 currently, up about 4.5 bps on the day while FNCL 4.5's are down 8 ticks on the day at 101-17. 101-20. Below 101-20, reprice risk increases until reaching 101-13 at which point we'd be looking at a 2nd round of reprices and the certainty of first time reprices. In terms of 10yr notes, relevant technical levels include 3.49 which is today's previous high, followed by 3.50 and 3.56. On the bullish side, we need to rally THROUGH 3.478 in order for charts to generate a bullish signal for bonds for the rest of the day. This would likely accompany an MBS market breaking back into 101-20's in FNCL 4.5's.
1:02PM  :  5yr Treasury Auction Results
U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 2.260 PCT, AWARDS 11.14 PCT OF BIDS AT HIGH *** BID-TO-COVER RATIO 2.79, NON-COMP BIDS $121.31 MLN *** PRIMARY DEALERS TAKE $16.19 BLN OF 5-YEAR NOTES SALE, INDIRECT $14.79 BLN
12:45PM  :  Yields Spike Past Recent Highs Ahead of Auction
With 20 minutes to go until the 5yr note auction, a preparatory concession is in process as bond yields rise despite falling stocks. 10's are at 3.476, as high as they were on 3/28. FNCL 4.5's are understandably less affected by auction supply and are resisting the sell-off a bit, currently down 6 ticks on the day at 101-18. Reprices for the worse are an increasing risk at these levels.
11:42AM  :  ALERT: Benchmarks Testing Support, MBS at Lows. Reprice Risk Increases.
While it's by no means a certainty that lenders will reprice for the worse ahead of the auction, the risk now presents itself with FNCL 4.5's at 101-19+. 10yr yields are at their worst levels of the day at 3.465 and have stayed moderately connected to stocks. If any lenders reprice soon, it's likely to be minimal unless the market falls further, and quickly.
11:17AM  :  New MBS Commentary Post

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard .
Bob V-G  :  "locking everything by 3/31---"
ENG  :  "same here Vic"
Victor Burek  :  "i'm locking everything before Friday... have to lock to be on old compensation plan"
Oliver S. Orlicki  :  "Have 10 or so deals not closing for another 30 days"
Oliver S. Orlicki  :  "so the question is, who is floating into NFP?"
Andrew Horowitz  :  "it also has been nicknamed in Chicago as the "a Dumb Print" report which tells you how much weighting actual traders give this figure"
Andrew Horowitz  :  "I have concern about the ADP report coming out tomorrow, although this number has continuously been inaccurate when comparing with the BLS statistics, for some reason the markets have been giving credibility"
Matthew Graham  :  "3.56 is the next stop on the train station and 3.70 is the end of the line... after that... gotta take "the tank.""
Victor Burek  :  "give mine to Andrew... he's been speaking about 3.56 for a while"
Matthew Graham  :  "those are both gold star answers"
Matthew Graham  :  "ah... well played gents"
Victor Burek  :  "3.56"
Bert Swyers  :  "3.70?"
Matthew Graham  :  "That's the zone we're testing right now, and it would take a solid auction tomorrow to hold it, followed by an NFP that doesn't spark a sell-off. Any weakness in between now and then, and you might be able to infer the next imaginary line across the chart that has played host to "bounces" both from above and below. I'll hold off on naming that zone of yields in case anyone fancies a guess for a gold star..."
Matthew Graham  :  "If you guys open up your 1 month 10yr chart, note how the rising yields in early March dip back down and bounce higher again off levels between 3.48 and 3.50"
Matthew Graham  :  "It's all about finding the ideal location to set up the pins again and see if we can knock 'em down"
Matthew Graham  :  "3.40/42 is about the BEST level in the 10yr we could have hoped for and still would have been quite aggressive as far as maintaining that momentum"
Matthew Graham  :  "although we're still able to entertain a longer term recovery in rates, the short term didn't look as good. In fact, bonds looked a bit overbought. The market needed to correct with some higher yields in order to even see whether or not the longer term bullishness could be maintained"
Matthew Graham  :  "reason being:"
Matthew Graham  :  "the exact words AQ used were "MG and I are pushing back against this rally" "
Matthew Graham  :  "AQ and I have been talking about this since Libya and Japan started moving rates lower"
Matthew Graham  :  "Not necessarily Jason"
Jason Sheaffer  :  "traders just assuming nfp will be better than expected?"
Matthew Graham  :  "broken"
JTB  :  "bounce baby bounce"
Matthew Graham  :  "RETESTING HIGH YIELDS NOW"
Victor Burek  :  "my bank lined reprced worse"
Matthew Graham  :  "3.478 is where we need to rally past for a positive indication"
Matthew Graham  :  "yields down a few ticks since auction though"
Matthew Graham  :  "Oliver, we got a touch on 3.49 pre-auction. I would expect that to hold as support, or at least get some respect as a pivot. "
Matthew Graham  :  "3.50, 3.56"
Oliver S. Orlicki  :  "where are our next pivot points?"
Matthew Graham  :  "see the pivots at 101-20 and 101-26?"
Matthew Graham  :  "good eye Yorkie..."
Jason York  :  "the 5 day chart shows a slow decline"
Bert Swyers  :  "we need a good auction today to stop the bleeding"