MBS MID-DAY: Mostly Flat. Defensive Sentiment

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MBSonMND: MBS MID-DAY
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FNMA 3.5
96-25 : +0-01
FNMA 4.0
100-26 : +0-02
FNMA 4.5
103-28 : +0-02
FNMA 5.0
106-11 : +0-00
GNMA 3.5
98-04 : +0-01
GNMA 4.0
102-15 : +0-01
GNMA 4.5
105-24 : +0-02
GNMA 5.0
108-04 : +0-00
FHLMC 3.5
96-18 : +0-01
FHLMC 4.0
100-24 : +0-03
FHLMC 4.5
103-23 : +0-01
FHLMC 5.0
106-06 : +0-01
Pricing as of 11:05 AM EST
Morning Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard .
10:54AM  :  MBS Flatten Out. Headline News Keeps Traders Defensive
The day began with an unfriendly directional drift into higher rates but that move has since corrected as stocks have come off their best levels on embedded technical weakness and another worse than forecast econ report (Consumer Sentiment). The Fannie Mae 4.0 MBS coupon is currently unchanged on the day at 100-25 after opening at 100-16. Loan pricing should be relatively flat today as a result. Profit taking has been seen in benchmark Treasuries heading into the weekend as investors refuse to leave any profits on the table. This illustrates a nervous feeling on the street. With headline news driving trading activity, traders have shortened their tactical timelines to a day over day period. Price volatility is to be expected. Everyone is just trying to stay flat and avoid getting caught in a vortex of volatility.
10:09AM  :  ECON: Leading Indicators +0.8 pct in May
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.8 percent in May to 114.7 (2004 = 100), following a 0.4 percent decline in April, and a 0.7 percent increase in March. (Consensus estimate was for a 0.2% gain). The largest contributions came from the interest rate spread, consumer expectations, and housing permits. Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI rebounded in May and resumed its upward trend with a majority of the components supporting this gain. The Coincident Economic Index, a monthly measure of current economic conditions, continued to increase slowly but steadily. Overall, despite short-term volatility, the composite indexes still point to expanding economic activity in the coming months.” Says Ken Goldstein, economist at The Conference Board: “Modest economic growth is being buffeted by some strong headwinds, including high gas and food prices and a soft housing market. The economy will likely continue to grow through the summer and fall, however it will be choppy.”
10:02AM  :  MBS Fall Despite Weaker Than Expected Sentiment
After June's preliminary figures for Consumer Sentiment came in slightly weaker than expected, the first move seen in MBS is to the downside. Fannie Mae 4.0 coupons are now down 3/32nds on the day at 100-22. This is slightly counterintuitive as weaker economic data is normally bond-friendly, but one of the internal components of the report speaking to longer term inflation expectations rose from a final reading of 2.9 in May to 3.0 in June's preliminary report. In addition, given the already strong levels in the bond market, it's possible the headline reading of 71.8 versus a 74.0 consensus is not weak enough to spur incremental improvements for MBS and Treasuries. 10yr notes are 3 bps higher on the day at 2.956.
9:55AM  :  ECON: Consumer Sentiment Worse on Econ Jitters
Reuters) - U.S. consumer sentiment worsened more than expected in June on renewed concerns about the outlook for the economy, while worries about inflation eased modestly, a survey released on Friday showed. Consumers remained pessimistic about stagnant incomes and job prospects, and their view of their own finances was largely unchanged at negative levels, the Thomson Reuters/University of Michigan survey showed. The preliminary reading on the overall index on consumer sentiment was 71.8, down from 74.3 the month before. It was below the the median forecast of 74.0 among economists polled by Reuters. Even so, the data gave little evidence a new downturn is underway, with most consumers believing the last recession had not yet ended, the survey found. "The majority of consumers are as convinced today as they were two-and-a-half years ago that their incomes will not increase, and the majority anticipate that the unemployment rate will remain stuck at about its current level for the foreseeable future," survey director Richard Curtin said in a statement. The survey's barometer of current economic conditions fell to 79.6, its lowest level since October 2010, from 81.9 in May. The current personal finances gauge dipped to 82 from 83, while expected personal finances edged up to 107 from 106. The survey's gauge of consumer expectations slipped to 66.8 from 69.5 and below a predicted reading of 68.6. The survey's one-year inflation expectation fell to its lowest since February, to 4.0 percent from 4.1 percent. The survey's five-to-10-year inflation outlook was at 3.0 percent, edging up from 2.9 percent. (Reporting by Leah Schnurr; Editing by Padraic Cassidy)
9:00AM  :  IMF Cuts U.S. Growth Forecast, Warns of Crisis
(Reuters) - The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits. The IMF, in its regular assessment of global economic prospects, said that bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies. The global lender forecast that U.S. gross domestic product would grow an anemic 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively. The outlook elsewhere was mixed. The IMF said it was slightly more optimistic about the euro area's growth prospects this year, but a lack of political leadership in dealing with that crisis and the budget showdown in the United States could create major financial volatility in coming months. "You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire," said Jose Vinals, director of the IMF's monetary and capital markets department. "We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis," he said in an interview in Sao Paulo, where the forecast was published.
8:50AM  :  Bonds Weaker on Greek Hopes. MBS Outperforming TSYs
Relative to Treasuries, MBS had a bad day yesterday, making only minimal gains versus a healthy day of Flight-To-Safety for benchmarks. But the tables have turned this morning into a slight downtrade motivated by overnight improvements to Greece's outlook. Fannie Mae 4.0 coupons are down 3/32nds so far this morning to 100-22 while 10yr Treasuries are down 12/32nds, increasing the yield by just over 4.5 bps to 2.9708. The 100-22 level is roughly on the lower end of yesterday's MBS trading range. Considerations surrounding the Eurozone situation and the quarterly options/futures expirations are the 2 most likely market movers until Consumer Sentiment hits at 9:55am. Volume is high versus recent averages, but not nearly as high as yesterday's immense overnight volume.

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard .
Matthew Graham  :  "BORIS SCHOLOSSBERG, DIRECTOR OF RESEARCH, GFT FOREX, NEW YORK "The University of Michigan data could hurt the euro in the longer run. The euro is having a knee-jerk bounce on an anti-dollar flow and the positive reaction to the possible resolution for Greece. But from a risk perspective, this data is negative. It suggests U.S. consumer sentiment is deteriorating, which doesn't bode well for U.S. growth or global growth. All of this does raise the question of how the Fed will react in the futu"
Matthew Graham  :  "CLARK YINGST, CHIEF MARKET ANALYST AT JOSEPH GUNNAR & CO IN NEW YORK: "We obviously monitor consumer confidence, but it is very fickle and there's not much of a correlation that we've been able to detect between confidence and behavior. Sometimes they diverge remarkably. So we don't put a lot of emphasis on this in terms of forecasting what spending will be, even though it was disappointing relative to forecasts. I'm sure renewed concerns about the labor market sparked the weakness. "Wha"
Matthew Graham  :  "DAVID SLOAN, ECONOMIST, IFR MARKETS, A UNIT OF THOMSON REUTERS: "The result is a disappointment for those who were hoping recent declines in gasoline prices might help kick-start the consumer where spending has recently lost some momentum. Indeed, consumers do not appear very impressed with the fall in gasoline prices, with the 5 year inflation view edging up to 3.0% from 2.9% and the 1 year view seeing only marginal slippage, to 4.0% from 4.1%.""
Matthew Graham  :  "COMMENTS: TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK "The softness in confidence needs to be placed in the proper context. Despite all of these headwinds we're still within the range we've occupied for the last several months. "There are a lot of headwinds. Among the negatives you've got headlines coming out of Greece and the economic data that makes consumers question whether the U.S. economy is slowing down. "Once the dust settles I think what you've still got is "
Matthew Graham  :  "and maybe "not weak enough" to spur incremental increase"
Scott Valins  :  "bond friendly all around no?"
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK AT LOWEST SINCE FEBRUARY "
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH CONSUMER CURRENT CONDITIONS INDEX AT LOWEST SINCE OCTOBER "
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH 5-YEAR INFLATION OUTLOOK PRELIM JUNE 3.0 PCT VS FINAL MAY 2.9 PCT "
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK PRELIM JUNE 4.0 PCT VS FINAL MAY 4.1 PCT "
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX PRELIM JUNE 66.8 (CONSENSUS 68.6) VS FINAL MAY 69.5 "
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIM JUNE 79.6 (CONSENSUS 80.5) VS FINAL MAY 81.9 "
Adam Quinones  :  "RTRS - THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT PRELIMINARY JUNE 71.8 (CONSENSUS 74) VS FINAL MAY 74.3 "
Adam Quinones  :  "if you're a retail guy and your pricing just tanked...it's a factor of pipeline control."
Adam Quinones  :  "4.0s are still the production coupon. 4.25 to 4.75 note rates fill those trades. 4.5 buckets are filled with 4.75 to 5.25 note rates."
Adam Quinones  :  "and I tried to explain to you here: http://www.mortgagenewsdaily.com/mortgage_rates/blog/216210.aspx"
Gus Floropoulos  :  "i had to explain this to some clients yesterday that are 10yr watchers"
Adam Quinones  :  "shouldnt be the case...why did your 4.625% buydowns just skyrocket David?"
Adam Quinones  :  "because the yield curve steepened and rates spiked and MBS prices plummeted?"
David Z.  :  "why would a rate sheet go back to the 4.5 when it was following the 4 for the last week or two?"
Adam Quinones  :  "their embedded convexity controls duration drifts and strategic curve flows. "
Adam Quinones  :  "MBS are really at the center of the investing universe."
Adam Quinones  :  "the lack of convexity in the marketplace (lack of refinancing) certainly doesnt do much to pressure rates lower on snowball buying (adding duration to replace called out MBS bonds aka buying convexity)"
Adam Quinones  :  "Gus you warm my heart with that question...."
Gus Floropoulos  :  "what is the likelihood rates are a bit worse due to the bond market activity vs mbs around par?"
Matthew Graham  :  "IMF'S VINALS: IT'S FUNDAMENTAL THAT POLICYMAKERS INCREASE EFFORTS TO TACKLE LONGSTANDING FINANCIAL CHALLENGES "
Matthew Graham  :  "IMF OFFICIAL VINALS: A PROLONGED PERIOD OF LOW INTEREST RATES MAY LEAD INVESTORS TO UNDERESTIMATE RISKS IN THEIR SEARCH FOR YIELD "
Matthew Graham  :  "IMF OFFICIAL VINALS: THERE ARE INCREASING MARKET CONCERNS IN THE U.S. DUE TO CONTINUED STALEMATE OVER DEBT CEILING, LONG-TERM FISCAL PACKAGE "
Matthew Graham  :  "IMF OFFICIAL VINALS: THERE ARE INCREASING CONCERNS ABOUT THE POLITICAL RESOLVE TO SUPPORT FISCAL ADJUSTMENT EFFORTS IN EUROPE'S PERIPHERY "
Matthew Graham  :  "IMF'S BLANCHARD: SOME EMERGING COUNTRIES IN ASIA SHOULD ALLOW FOR FURTHER APPRECIATION OF THEIR CURRENCIES "
Matthew Graham  :  "IMF'S BLANCHARD: MANY COUNTRIES INCLUDING THE U.S. HAVE YET TO PUT IN PLACE A CONVINCING MEDIUM-TERM FISCAL CONSOLIDATION PLAN "
Matthew Graham  :  "IMF CHIEF ECONOMIST BLANCHARD SAYS RETURNING TO FISCAL HEALTH IN SOME COUNTRIES WILL BE A LONG AND PAINFUL PROCESS "
Adam Quinones  :  "4.0s 6-7 ticks tighter so far."
Christopher Stevens  :  "nice to see MBS catching a bid this morning despite move up in 10YR yield"
Matthew Graham  :  "IMF: SOME EMERGING MARKETS AT RISK OF OVERHEATING, NEED TO TIGHTEN MONETARY POLICY, REBALANCE ECONOMIES "
Matthew Graham  :  "IMF CITES GREECE, IRELAND, JAPAN AND UNITED STATES AS COUNTRIES WITH BIGGEST NEED TO REPAIR PUBLIC FINANCES "
Matthew Graham  :  "IMF SAYS DOWNSIDE RISKS TO GLOBAL ECONOMIC GROWTH INCREASING "
Matthew Graham  :  "LIFTS EURO AREA 2011 GDP GROWTH FORECAST TO 2.0 PCT FROM 1.6 PCT APRIL, LOWERS 2012 TO 1.7 PCT FROM 1.8 PCT "
Matthew Graham  :  "IMF LOWERS U.S. 2011 GDP FORECAST TO 2.5 PCT FROM 2.8 PCT IN APRIL, 2012 GDP TO 2.7 PCT FROM 2.9 PCT "
Matthew Graham  :  "IMF SAYS U.S., SOME EURO ZONE COUNTRIES "PLAYING WITH FIRE" UNLESS THEY MAKE DIFFICULT BUDGET DECISIONS "
Adam Quinones  :  "exactly! I believe we've gone full circle. Ira and other secondary managers share your sentiments!"
Ken Crute  :  "just saying, worst thing is to have a heavy lock week, and then on monday get the emails, Hey KC, I know you are a totaly awesome LO and all, but over the weekend I found a quote from, ABC Mortgage that was .00000001% bettter than yours, "
Ira Selwin  :  "Amen"
Adam Quinones  :  "if I were you id be praying for less volatility and more pull-through!"
Adam Quinones  :  "Ira since when have you liked peeling off coverage or rolling at higher prices because rates fell and your pipe is clamoring for better pricing?"
Ira Selwin  :  "BOOOOOO (I'm booing AQ's comment)"
Adam Quinones  :  "you sound like a lock desk Ken."
Ken Crute  :  "probably will be booed on this one, but would like to see an uptick today in rates, so if the group I locked this week gets curious and starts surfing the net for rate quotes, I still stand out as the best "
Adam Quinones  :  "AND.... "In an effort to shore up political confidence amid the ongoing debt crisis, Greece´s Socialist government announced a broad reshuffling of ministers with Evangelos Venizelos as the new finance minister, replacing George Papaconstantinou who will become environmental minister. The move is an attempt to muster support for harsh reforms conditioned to further bailout funding currently on the table, triggering violent protests on the streets of Athens in recent days.""
Adam Quinones  :  "FX Street took a little more time to explain: "The Greek situation continues to dominate the headlines today, with the most recent news being that German Chancellor Angela Merkel has conceded that any new aid program would include the "voluntary" participation of the private sector. The announcement came at a joint press conference between Merkel and French President Nicolas Sarkozy, who had put up strong resistance to the German proposal of private creditors swapping bonds for new ones with lon"