MBS MID-DAY: More Price Weakness Seen

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MBSonMND: MBS MID-DAY
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FNMA 3.5
93-09 : -0-10
FNMA 4.0
97-22 : -0-09
FNMA 4.5
101-09 : -0-05
FNMA 5.0
104-07 : -0-03
GNMA 3.5
94-12 : -0-09
GNMA 4.0
99-11 : -0-08
GNMA 4.5
102-22 : -0-07
GNMA 5.0
105-22 : -0-03
FHLMC 3.5
93-03 : -0-09
FHLMC 4.0
97-17 : -0-08
FHLMC 4.5
101-04 : -0-05
FHLMC 5.0
104-00 : -0-02
Pricing as of 11:02 AM EST
Morning Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard .
10:47AM  :  ALERT: Benchmarks Break Past Morning Highs. Reprices Possible
10yr notes had previously seen some support at 3.52 but just broke higher and currently sit at 3.532. The next major support lies at 3.56. MBS are resisting the sell-off a bit better, down only 6 ticks on the day at 101-08 in FNCL 4.5's. Still, we're down enough that lenders who were out with rates before 10am may be considering a reprice for the worse.
10:12AM  :  WSJ's Bullard Interview Highlights Troublesome Fed Divisions
(WSJ) - James Bullard, president of the Federal Reserve Bank of St. Louis, said he would push at the Fed’s upcoming two-day policy meeting (April 26 and April 27) to reduce the central bank’s quantitative easing program by $100 billion, but held out little hope of being successful. Bloomberg News St. Louis Fed President James Bullard “I don’t always get my way on the committee,” he noted in an interview with the Wall Street Journal. Most Fed officials want to carry the program through to its end in June. “Any changes that we’re going to make we’re going to have to make at this meeting,” he added. Mr. Bullard was elaborating on comments he made last week about the Fed’s $600 billion program of U.S. Treasury securities purchases. When the Fed launched the program last November it had lower forecasts for growth and inflation, he said. “We got a stronger economy and we got higher inflation and higher inflation expectations than we expected at the time,” he said. “The logical thing to do is to pull back.”
9:42AM  :  Bonds Tick to Weakest Levels After Stock Market Open
In the 8 minutes since the stock market opened, the lever has hooked up with strong positive correlation. Stock prices moved moderately higher, bond yields followed, bringing them to their weakest levels of the day. For 10yr notes, that was a test of 3.52 and for MBS, it adds up to a 5 tick loss on the day, bringing FNCL 4.5's to 101-09. While this isn't enough incremental weakness for reprices for the worse, it does point to weaker rate sheets as lenders release this morning.
8:42AM  :  Inflation Anxiety Pressuring Rates Higher
Treasuries weakened across the yield curve Tuesday as bond investors expressed their nervous sentiments over a few increasingly vocal inflation hawks on the FOMC board. The Fed's overnight lending rate has been at an unprecedentedly low zero to 0.25% range since December 2008. Some members of the FOMC are calling for those rates to rise as its program of quantitative easing is scheduled to conclude this summer. Rising rates would mean that current Treasury coupons are less attractive, which causes a sell-off. Just last night St. Louis Federal Reserve chief James Bullard said that it was unlikely that for the Fed would wait for unemployment to reach normal levels before removing monetary accommodation. The benchmark 10-year Treasury yield gave up six basis points to finish at 3.49% Tuesday. 10s are currently bid 5/32 lower in price at 100-31+ yielding 3.506%. Overnight trading volumes were very low with less than 200,000 futures contracts trading as of 8AM. The 2s/10s yield curve is 2 basis points steeper at 268bps wide. In his morning note AQ called attention to rising inflation expectations with a chart illustrating wider 5-year inflation breakevens between TIPS securities and TSY benchmarks. Trading volume in the TBA MBS market picked up yesterday as day trader's "rinsed and repeated" their tactical yield spread trades and investors prepared for the monthly roll on Monday and the release of the March prepayment report tonight. FNCL 4.5 prices ended the session -10/32 at 101-14. Yield spreads tightened in the morning hours and widened out into the close, ending the two-day period essentially unchanged vs. the curve. Reprices for the worse were reported. The FNCL 4.5 MBS coupon is currently -4/32 at 101-10. AQ has the secondary market current coupon marked at 4.274%. Yield spreads are moving wider vs. benchmarks this morning as MBS cash flows extend into higher rates (higher mortgage rates = slower prepayment speeds = more MBS cash flows = higher yield).
6:55AM  :  New MBS Commentary Post

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard .
Adam Quinones  :  "let me think...I BET THEY ARE SLOW."
Adam Quinones  :  "prepays print today."
Adam Quinones  :  "Notification Day is Monday "
Adam Quinones  :  "yesterday we saw uptick in flows thx to basis trading, prepayment report positioning, and early rolls."
Andrew Horowitz  :  "any volume in MBS world past couple of days with this selling?"
Christopher Stevens  :  "my float boat has been docked for a while...locking as I get them now"
Jason York  :  "most did because they thought 4/1 was starting the new plan"
Adam Quinones  :  "not much float out there...."
Adam Quinones  :  "before Orig Comp."
Adam Quinones  :  "and lots of folks locked up last Thursday"
Adam Quinones  :  "we said lock at 3.17%"
Andrew Horowitz  :  "that is AQ's way of saying lock"
Adam Quinones  :  "BEWARE: Mortgages are gonna extend and create modest amount of snowball selling in bond market. Next target in 10s is 3.56%. "
Adam Quinones  :  "that is the next target..."
Bert Swyers  :  "3.56 here we come"
Adam Quinones  :  "see chart of excess reserves: http://www.mortgagenewsdaily.com/mortgage_rates/blog/201327.aspx "
JTB  :  "Exactly, AQ. I remember seeing 2-3 years ago the banks set aside $1 Trilliion and thought, "why would they just sit on it?" Well, the question seems easily answered, now. They are NOT going to be lending anytime soon. "
Adam Quinones  :  "btw Brent I had that "unrealized losses" convo with Berliner yesterday....we tried to quantify the potential losses and kept coming up with ridiculously stupidly high numbers that dont include the potential impact of another rush of foreclosures"
Andrew Horowitz  :  " inflation is transitory in the US, commodity inflation only makes up roughly 10% of true inflation in US, it is in the developing countries where commodity expense is a much greater percentage of their development costs that inflation is a real factor"
Adam Quinones  :  "Commodity prices and ignorant Fed officials"
JTB  :  "Agreed. And, at some point these banks will have to start taking losses on these homes that they haven't received payment on in 2 years, and should have foreclosed but haven't...another reason to sit on $$$. So where is the source of these inflation expectations?"
Adam Quinones  :  "resource slack keeping a lid on demand-pull inflation, weak wage growth preventing cost-push. All we're getting is higher cost of living: http://www.mortgagenewsdaily.com/mortgage_rates/blog/203362.aspx"
Adam Quinones  :  "job creation is key to money creation"
Adam Quinones  :  "no."
JTB  :  "AQ-Would you infer then that the markets are anticipating the banks to start putting that money out there? "
Adam Quinones  :  "I wouldnt say "making print"...as much as the market is anticipating an uptick in inflation down the road."
Adam Quinones  :  "there is real inflation and the expectation for inflation"
Matthew Graham  :  "let me clarify, inflation argument re: money creation moderates real inflation"
Matthew Graham  :  "inflation argument is a sort of measured logic that not everyone agrees on. only smart people"
JTB  :  "So from Bond buyers (sellers?) point of view they know they can't have inflation if the banks just sit on the money, right? So anytime you read the nice little headlines that Treasuries sell due to investors inflation concerns (read: Bullard spoke today) they are just making print. Right?"
Matthew Graham  :  "to wit: http://blogs.wsj.com/economics/2011/04/05/feds-bullard-to-push-for-curtailing-qe2-at-april-meeting/"
Matthew Graham  :  "but do understand that the Fed has some dissenters on the matter. that's the "static" you're probably picking up on in the general message."
Adam Quinones  :  "can't have inflation without money creation. banks are sitting on excess reserves. Read the blog: http://www.mortgagenewsdaily.com/mortgage_rates/blog/201327.aspx"
Adam Quinones  :  "not gonna happen Bote"
Matthew Graham  :  "one of the bullets: * SEVERAL FED OFFICIALS INDICATED THEY DID NOT ANTICIPATE MAKING ADJUSTMENTS TO BOND BUYING PROGRAM BEFORE ITS INTENDED COMPLETION "
Matthew Graham  :  "you got what is basically the most authoritative and definitive comment on that question out yesterday via Minutes"
Matthew Graham  :  "article basically says the same stuff that AQ and Patrick wrote this AM, as well as some quotes, etc... seemed useful to me in constructing an early, solid viewpoint on markets today..."
Matthew Graham  :  "http://www.reuters.com/article/2011/04/06/markets-bonds-idUSN0621023120110406"
Matthew Graham  :  "check this out:"