MBS RECAP: Treading Water

Elizabeth Warren, special advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFPB) said on Monday that the Bureau will begin testing the new versions of the mortgage disclosure forms required under the Truth in Lending Act and the Real Estate Settlement Procedures Act. These disclosures have undergone many revisions in an attempt to make them comprehensive but at the same time clear and understandable to the consumers for whom they are designed. Legislation now requires that the two disclosures be combined into a single form and Warren has made this a priority of the Bureau. During a break from the proceedings of a bankers conference Warren told a reporter for Dow Jones Newswires that she has been consulting with banks on the content and form of the disclosures for months and "We will be looking at our first [mortgage form] prototypes," in May.

Reprices for the better have come across for a few lenders, but not because MBS prices have moved any higher than they were this morning. Rather, lenders have been able to pass on small gains in a few instances due to the ongoing stability in MBS prices and their benchmarks such as the 10yr Treasury. FNCL 4.5's are a tick higher than their morning highs and remain in line with their previous range at 102-07. 10yr yields continue to hold under 3.37 despite stocks at their highs of the day. 10's are currently at 3.359, and with 15 minutes to go until Treasury's 3pm close, it looks as if today will get marked at slightly better levels than yesterday. This also sets up 3.40 as the site of a supportive bounce this morning, with a several resistance bounces yesterday between 11am and 1230pm.

Once again, we have Treasuries refusing to keep pace with rising stocks past a certain point. Yesterday, 10yr yields refused to go any higher than 3.378 despite a progressive rally in stocks. Today, yields have similarly refused to rise above 3.367 despite rallying stocks and a previously noticeable degree of correlation. This show of force in benchmarks has MBS exhibiting similar defiance, currently up 2 ticks on the day at 102-07. Though not likely to be widespread, reprices for the better are possible due to the ongoing stability of MBS prices and the resilience of benchmarks.

As the S&P dipped into negative territory on the day, bonds experienced their best levels with the 10yr note getting into the 3.34's and FNCL 4.5 MBS reaching 102-09. Since then, the S&P is back in the green and the moderate rise in stock prices has exerted moderate pressure on TSYs and MBS. 10yr yields are back up to 3.365 at the moment and FNCL 4.5's are down a few ticks to 102-06, although this is still one tick better on the day. The current weakness is by no means cause for concern regarding reprices for the worse, but it does suggest two things: a short term resistance level in 10yr notes around 3.35 and a nominal connection of the stock lever in the absence of economic data or market moving headlines.

C30 loan pricing +14.6bps on average today. This extends a 7-day winning streak. 4.75 buydown still near 1pt (10+years breakeven). Originators could quote it but it’d be skinny deal. We are hearing scattered reports of it being offered to consumers already though. The more broad-based the quote becomes, the more we’d expect loan supply to pick up relative to the recent dearth of hedging. It’s all about competitiveness on the street….primary/secondary spreads moving tighter.

10yr yields just pushed into the 3.35's, the lowest since the Japan Crisis, as stocks have been drifting lower since the open. The S&P briefly touched yesterday's closing levels at 1305.11 and FNCL 4.5 MBS mad a fresh high, 2 ticks up on the day at 102-07. We'd recommend the following link as a good framework for considering current events and market movements: