MBS RECAP: Reprices Both Ways

WASHINGTON, March 31 (Reuters) - The House Financial Services Committee plans to vote in early May on a bill to wind-down Fannie Mae and Freddie Mac , Representative Spencer Bachus, the panel's chair, said on Thursday. That move would mark another shift in strategy among House Republicans about what to do with the two largest providers of funding for the $10.6 trillion U.S. residential mortgage market. House Repubicans earlier this week introduced a series of more targeted measures aimed at reducing the influence of the two firms without shutting them down entirely. "We may let the other bills catch up ... but there is no reason not to vote on the comprehensive bill," Bachus told Reuters. (Reporting by Corbett B. Daly)

For a 2nd time today, bonds are at their weakest levels. FNCL 4.5's are down 6 ticks on the day at 101-21 and the 10yr is yielding 3.4722. Although this is marginally inside the 3.478 seen earlier, it's not yet clear whether or not it will stay that way. Even at current levels, reprices for the worse are possible.

After bonds turned a corner at the weakest levels this morning, that was pretty much all she wrote. Frequently, bullish and bearish trends converge heading into the important Employment Situation Report, and we're seeing that play out in classic fashion today. The hallmark of this convergence, other than the "triangle" you might picture with your mind's eye, is a series of peaks and valleys in graphs of bond prices (or yields) that progressively converge. Each successive peak gets lower and lower. Each valley, higher and higher. After the most recent bout of selling pressure, we see support come in before the weakness reached earlier levels, exactly what should happen according to past precedent. Effectively, the 10yr is telling us it's going into tomorrow predisposed toward 3.45 and FNCL 4.5's toward 101-26. Despite the predictable behavior, recent losses were enough for a few lenders to reprice for the worse. If today's trading bucks the historical trend and FNCL 4.5's fall back below 101-22, we could see more. Reprices for the better are unlikely in the current environment.

(Making Sen$e)- This Friday, April 1: an eye-opening look at the fate of many veterans attempting to transition back into a tough job market. Today, there are over two million Iraq and Afghanistan veterans. And despite government incentives to hire them, the "welcome home" for many -- more than 11 percent in 2010 -- is an unemployment check. Paul Solman talks with vets who say they've learned the key job skills while serving their country: selflessness, loyalty, teamwork, leadership. He profiles an organization helping them maximize those skills while transitioning back into civilian life. And he examines the fears of employers who say they worry about post-traumatic stress disorder. WATCH THE VIDEO: http://www.pbs.org/newshour/businessdesk/2011/03/coming-up-the-fate-of-americas.html

WASHINGTON, March 31 (Reuters) - A Federal Reserve survey of senior credit officers issued on Thursday found more demand for funding for securities deals and better credit terms from December through February. "Overall, respondents ... indicated a further easing in credit terms across different counterparty types and securities financing transactions over the previous three months," the survey said. (Reporting by Glenn Somerville; Editing by Jan Paschal) *** FED CREDIT OFFICER SURVEY FINDS EASING IN CREDIT TERMS FOR COUNTER-PARTIES AND SECURITIES FINANCING IN PAST THREE MONTHS *** FED SAYS DEALERS REPORT INCREASED DEMAND FOR FINANCING FOR ALL TYPES OF SECURITIES *** FED-MOST COMMON REASONS CITED FOR EASING TERMS INCLUDE MORE COMPETITION, IMPROVED FINANCIAL STRENGTH OF COUNTER-PARTIES *** FED SURVEY INCLUDES 20 INSTITUTIONS, COVERS CHANGES IN CONDITIONS FROM DECEMBER 2010-FEBRUARY 2011

Here we go with round two of weakness for bonds, but this time, not as headline motivated as technically motivated. Bonds are doing what they usually do into an NFP which is to consolidate in a series of lower highs and higher lows. The reprice risk this time is perhaps not as severe as it was this morning, but lenders may be more sensitive to any sort of directional decline after this morning's action got pulses elevated. FNCL 4.5's fell from 101-29 to 102-24 in short order, and just clawed back a tick to 101-25

CHARLOTTE, N.C., March 31 (Reuters) - Banks must face tough capital standards that allow them to not only survive a major storm but also to keep lending to other institutions even in times of stress, a top Federal Reserve official said on Thursday. Daniel Tarullo, a Fed board governor who supervises regulatory affairs at the U.S. central bank, said it was unclear that bigger is always better for the banking sector, citing the lack of research on the "social utility" of super-sized financial firms. Capital requirements should be set so that firms designated by Congress and regulators as systemically important could "reasonably be expected to absorb losses associated with systemic stress without extraordinary government assistance, and still be well enough capitalized to serve as sound intermediaries," Tarullo told a conference sponsored by the Richmond Fed. His comments come just as the Fed released gobs of data on emergency lending during the financial crisis, highlighting just how dependent both U.S. and foreign banks were on the help of monetary authorities in the worst months of the turmoil. (Reporting by Pedro Nicolaci da Costa; Editing by Andrea Ricci)

101-27 insulated FNCL 4.5's against lower prices this morning and then acted as a ceiling when MBS rallied after the sell-off. But recently, we've broken through that glass ceiling and currently sit at 101-28+. Any ongoing price action occurring at 101-27 or higher goes a long way toward protecting against the reprice risk created by the sell-off. 10yr notes recovered as well and currently sit at 3.437.

Following the steep losses on the IMF news, MBS and treasuries put in supportive bounces--aka "bleeding stopped"--and are climbing back. Volume is dying down as well confirming that the biggest volume spikes have been seen both driving yields higher and capping them out from further weakness (at least as far as it relates to this news this morning). 10's are back down to 3.454 and FNCL 4.5's are back up to 101-24+. The bounce back came early enough and appears stable enough that some lenders might not reprice for the worse. But then again, some still might!

Often times on the day following the auction of a particular Treasury security, you will notice that the price change is not in tune with the rest of the curve. It's not that the security in question is actually performing that differently, but rather because the "change" column is marking the change in price between yesterday's prices, which were based on yesterday's coupon and today's prices based on what is likely a DIFFERENT coupon. So there is no significance to these discrepancies in PRICE and at such times, you're better served by simply watching the change in YIELD. Let us know if this is unclear or if you have any questions.

WASHINGTON, March 31 (Reuters) - Delinquencies on U.S. home mortgages fell for the fourth consecutive quarter, but the housing market still faces serious problems, according to a report released by U.S. banking regulators on Thursday. The total number of serious delinquencies fell 8.2 percent to 1.76 million in the fourth quarter, according to a report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Completed and newly initiated foreclosures were down significantly in the quarter, but this slowdown was due to reviews being conducted by banks and regulators of lenders' mortgage servicing procedures, which are being heavily scrutinized. A group of 50 state attorneys general and about a dozen federal agencies are probing bank mortgage servicing problems that came to light last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day. Regulators said new and completed foreclosures are set to increase in the coming quarters when this review is finished. In the fourth quarter, completed foreclosures dropped by almost 50 percent to 95,067, while newly initiated foreclosures fell by almost 8 percent to 352,318. The OCC and OTS Mortgage Metrics Report provides performance data on first-lien residential mortgages serviced by national banks and federally regulated thrifts. The mortgages in this portfolio comprise about 63 percent of all mortgages outstanding in the United States. (Reporting by Dave Clarke, Editing by Lisa Von Ahn)