FOMC Summary Plus Bernanke Q&A
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MBSonMND: MBS RECAP
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Afternoon Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard
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4:07PM : MBS Outperform in Choppy Session. Headlines Lack Direction
For the third day in a row, intraday price volatility kept mortgage rate watchers on their toes. The Fannie 4.0 MBS coupon bounced around an 11/32 range and even jumped from one end to the other, twice! While this forced us to issue multiple directional warnings, only scattered reprices for the better were reported... most of which were the usual quick trigger types like Provident and FAMC. Looking back at the past 24-hours, we've had to deal with a lot of letdowns. The headlines we were expecting to make an impact on the markets, failed to do so. After a vote of confidence passed uneventfully last night, Greek lawmakers are now free to enact aggressive austerity measures. This should've given equity markets a boost and help tighten up European debt spreads, but it didn't. The market still believes Greece is likely to default on its debt. Then came the FOMC Statement today. The Fed confirmed a slower than expected economic recovery but said we should anticipate a pick-up in the second half of the year. The Committee also says recently rising inflationary pressures are short-term in nature. No hints on whether or not another Quantitative Easing package is in the works were given. But Ben did remind us that the Fed is operating under a larger than normal amount of uncertainty, and that the Board will react appropriately as new developments are observed in economic data. This leaves the door open for anything. Both stock and bond markets reacted unfavorably as headline news failed to motivate directional flows. This does not reflect a particular bias in the marketplace as much as it illustrates short-term strategery at time when the majority of investors are sitting on the sidelines waiting for new guidance (lack of liquidity). Mortgages did outperform benchmarks though, on what we might describe as a combination of bargain buying and speculative "strategery". The bad news is, MBS buying occurred in light volume. There just wasn't much conviction in the move.
For the third day in a row, intraday price volatility kept mortgage rate watchers on their toes. The Fannie 4.0 MBS coupon bounced around an 11/32 range and even jumped from one end to the other, twice! While this forced us to issue multiple directional warnings, only scattered reprices for the better were reported... most of which were the usual quick trigger types like Provident and FAMC. Looking back at the past 24-hours, we've had to deal with a lot of letdowns. The headlines we were expecting to make an impact on the markets, failed to do so. After a vote of confidence passed uneventfully last night, Greek lawmakers are now free to enact aggressive austerity measures. This should've given equity markets a boost and help tighten up European debt spreads, but it didn't. The market still believes Greece is likely to default on its debt. Then came the FOMC Statement today. The Fed confirmed a slower than expected economic recovery but said we should anticipate a pick-up in the second half of the year. The Committee also says recently rising inflationary pressures are short-term in nature. No hints on whether or not another Quantitative Easing package is in the works were given. But Ben did remind us that the Fed is operating under a larger than normal amount of uncertainty, and that the Board will react appropriately as new developments are observed in economic data. This leaves the door open for anything. Both stock and bond markets reacted unfavorably as headline news failed to motivate directional flows. This does not reflect a particular bias in the marketplace as much as it illustrates short-term strategery at time when the majority of investors are sitting on the sidelines waiting for new guidance (lack of liquidity). Mortgages did outperform benchmarks though, on what we might describe as a combination of bargain buying and speculative "strategery". The bad news is, MBS buying occurred in light volume. There just wasn't much conviction in the move.
1:47PM :
ALERT:
Positive Reprices Reported. Beware of Losing It Though...
The FOMC Statement has been released. As expected the Board reigned its outlook by saying the economic recovery was expanding "more slowly than the Committee had expected". The Fed also admitted inflation had ramped up in the near-term but continued to claim it would be a temporary phenomenon. Overall, while there was a bearish economic tone embedded in the Fed's monetary policy message, it did little to motivate bond market buyers. Instead, as stocks ticked sideways, we witnessed more "fast money" profit taking in bonds (day trader types). This does not reflect any particular bias in the marketplace as much as it illustrates short-term "strategery" at time when the majority of investors are sitting on the sidelines waiting for new guidance (lack of liquidity). We are not panicking about the bond market's failure to mount a rally on this Fed update. The announcement turned out to be a "non-event". We already knew the economy wasn't performing as well as forecasters had predicted it would. The Fed merely confirmed that observation. Nonetheless, production MBS coupons are 10/32 below their best levels of the day and reprices for the better have already been reported. If you did already receive a reprice for the better, you're in danger of losing it now. Most others should be safe unless MBS prices fall to new session lows in the next 30 minutes.
1:09PM :
FOMC: Recovery Lags Forecasts. Temporary Factors at Work
(Reuters) - The Federal Reserve on Wednesday said the pace of economic recovery was proceeding more slowly than it had expected, but it expressed hope growth would pick up soon. It also pinned a quickening of inflation largely on temporary factors, including higher commodity prices and supply chain disruptions from Japan's devastating earthquake. The central bank said the forces pushing up prices should dissipate, allowing inflation to subside to levels consistent with price stability, even as growth revives. "The slower pace of recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply-chain disruptions associated with the tragic events in Japan," the Fed said in a statement at the conclusion of a two-day meeting. As widely expected, the Fed said it will maintain interest rates at exceptionally low levels for an extended period. It also confirmed it was ending its $600 billion bond-buying program at the end of the month, while reiterating that it will continue to reinvest principal payments from its holdings. The Fed downgraded its view of the labor market, saying it had been "weaker than anticipated." That contrasted with the statement after its last meeting in April when it said the job market was "improving gradually." Analysts have in recent weeks speculated the Fed may begin to consider what other tools it has to spur economic growth. Possible steps could include further asset purchases, or a bolstering of promises to markets that easy money policies will be in place until there are clear signs the recovery is taking off.
12:21PM :
ALERT:
On Positive Reprice Watch as MBS Rally Before Fed
In the true spirit of intraday volatility, production MBS coupons have recovered from a brief bout of price weakness and are now setting new session highs. The Fannie Mae 4.0 MBS coupon is currently bid 13/32 higher at 101-012 after falling as low as 100-23 in the mid-morning hours. Some lenders could reprice for the better as a result, but we don't expect to see lock desks rushing to recall rate sheets. It simply makes more sense to wait until these intraday improvements are confirmed by a dovish FOMC Statement at 12:30. , especially when you consider the volatility we've witnessed over the past 48 hours. "Dovish" = A monetary policy outlook that is supportive of low interest rates.
12:09PM :
ECON: Mortgage Apps Down After Jump in Rates
The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 17, 2011.
Although mortgage rates have rallied back to levels just above their all-time lows, home loan demand has largely failed to react to it. The MBA did report a nice uptick in refinance applications in the week ending June 7th, and while this was exciting, even that jump failed to spark further momentum as the Refinance Index declined 7.2 percent in the most recent report. Mortgage rates did however move higher last week, so besides all the barriers that continue to block borrowers from reducing their monthly payments, there is an explanation for the most recent slowdown. Excerpts from the release...The Refinance Index decreased 7.2 percent from the previous week. The four week moving average is up 0.8 percent. The refinance share of mortgage activity decreased to 69.2 percent of total applications from 70.0 percent the previous week. The seasonally adjusted Purchase Index decreased 2.8 percent from one week earlier. The unadjusted Purchase Index decreased 3.9 percent compared with the previous week and was 4.4 percent higher than the same week one year ago. The four week moving average is down 0.7 percent. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.57 percent from 4.51 percent, with points decreasing to 0.91 from 1.04 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also increased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.70 percent from 3.67 percent, with points decreasing to 1.05 from 1.06 (including the origination fee) for 80 percent LTV loans. The effective rate also increased from last week.
11:15AM :
New MBS Commentary Post
Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard
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Adam Quinones : "6-8 tick out performance there..."
Adam Quinones : "it is encouraging to see FNCL 4.0s +0-07 even though 10s are -4/32"
Adam Quinones : "...trending higher in price that is."
Adam Quinones : "seems like a speculative play on the outlook for further trending"
Adam Quinones : "long end of MBS curve (production coupons) looks cheap"
Adam Quinones : "shorter duration stuff is lagging today including 15yrs"
Adam Quinones : "real money buyers Andy."
Adam Quinones : "we said this yesterday...Plain and Simple: Although mortgage rates are at all-time lows and home affordability is at an all-time high, fence sitting home buyers are waiting for proof that home prices have hit bottom before making the biggest investment decision of their life. While they wait for a clear cut buy signal, home prices will fall further and home buyer pessimism will intensify which will lead to more weak housing data. And the downward spiral begins...
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Adam Quinones : "RTRS - - BERNANKE-BUYERS NEED TO BE CONFIDENT THAT THEY ARE NOT BUYING INTO A FALLING HOME PRICE MARKET "
Adam Quinones : "RTRS - BERNANKE SAYS WOULD LIKE TO SEE FURTHER EFFORTS TO MODIFY LOANS WHERE APPROPRIATE, SPEED FORECLOSURE PROCESS AND CLEAR MARKET "
Adam Quinones : "MBS outperforming?"
Andy Pada : "Why AQ?"
Adam Quinones : "MND - 10YR NOTE OVER 3.00%. MBS OUTPERFORMING"
Adam Quinones : "RTRS - BERNANKE SAYS FED HAS ASKED BANKS TO MANAGE REAL ESTATE HOLDINGS IN AN "ECONOMY SUPPORTIVE WAY" "
Adam Quinones : "RTRS - BERNANKE SAYS TOUGHER MORTGAGE CREDIT STANDARDS HAVE HURT HOUSING MARKET "
Adam Quinones : "RTRS - FED'S BERNANKE-HOUSING IS IMPORTANT TO OVERALL RECOVERY "
Adam Quinones : "RTRS - BERNANKE-SAYS IT IS "PRETTY IMPOSSIBLE" TO CREATE A STATISTICAL TRIGGER OF INFLATION OR UNEMPLOYMENT FOR STARTING FED'S EXIT "
Adam Quinones : "RTRS - BERNANKE-SECURITIES PURCHASES SUCCEEDED IN ENDING RISK OF DEFLATION "
Adam Quinones : "RTRS - BERNANKE SAYS A DETERMINED CENTRAL BANK CAN ALWAYS DO SOMETHING TO FIGHT DEFLATION "
Adam Quinones : "MND - STOCK FUTURES NOW NEGATIVE"
Adam Quinones : "RTRS - BERNANKE SAYS OF FED WERE TO STIMULATE ECONOMY FURTHER, IT COULD DO MORE SECURITIES PURCHASES, CUT INTEREST PAID ON BANK RESERVES "
Adam Quinones : "notice...MORE UNCERTAINTY"
Adam Quinones : "RTRS - BERNANKE SAYS FED UNCERTAIN ABOUT HOW MUCH OF SLOWDOWN IS TEMPORARY, HOW MUCH IS PERMANENT "
Adam Quinones : "RTRS - BERNANKE SAYS CURRENT OUTLOOK CONSIDERABLY DIFFERENT THAN AUGUST 2010; NO DEFLATION RISK AND INFLATION IS NOW ABOVE TARGET "
Adam Quinones : "RTRS - BERNANKE SAYS EXPECTS GROWTH SECOND HALF OF THIS YEAR AND EARLY NEXT YEAR TO BE FASTER THAN SO FAR THIS YEAR "
Adam Quinones : "RTRS - BERNANKE SAYS FED PROJECTS UNEMPLOYMENT TO COME DOWN "VERY PAINFULLY, SLOWLY" "
Adam Quinones : "MND - STOCK FUTURES NEAR NEGATIVE ON SESSION"
Adam Quinones : "RTRS - FED'S BERNANKE SAYS PERSONAL FORECAST IS WITH FOMC CONSENSUS, NOT "EXTREME VIEW""
Adam Quinones : "RTRS - BERNANKE SAYS REGARDING DECIDING THE EXIT OF STIMULUS, NO ALTERNATIVE BUT TO MAKE JUDGEMENTS ON INCOMING DATA "
Adam Quinones : "Notice how often Bernanke reminds us of elevated levels of uncertainty in FOMC economic forecasts.."
Adam Quinones : "RTRS - BERNANKE-HASN'T CHOSEN TO GIVE AN EXPLICIT TIME FRAME FOR LOW RATES BECAUSE FED WANTS TO ANALYZE INCOMING DATA "
Adam Quinones : "RTRS - BERNANKE SAYS EXTENDED PERIOD IS AT LEAST TWO OR THREE MEETINGS AHEAD, WITH AN EMPHASIS ON "AT LEAST""
Adam Quinones : "RTRS - BERNANKE SAYS "WE DONT KNOW EXACTLY" HOW LONG IS THE EXTENDED PERIOD FOR EXTRAORDINARILY LOW INTEREST RATES "
Adam Quinones : "RTRS - BERNANKE SAYS AS PRICE OF OIL DECLINES, THERE WILL BE SOME DECLINE IN CORE MEASURES OF INFLATION "
Adam Quinones : "10S TOUCH 2.994% BRIEFLY"
Adam Quinones : "RTRS BERNANKE SAYS FED STILL BELIEVES THAT U.S. OUTPUT GAP IS STILL QUITE LARGE "
Adam Quinones : "RTRS BERNANKE SAYS FED BELIEVES THAT HIGHER CAPITAL REQUIREMENTS WILL HELP PREVENT FINANCIAL CRISIS BUT WOULD HAVE LITTLE IMPACT ON LENDING "
Adam Quinones : "RTRS - BERNANKE SAYS IMPORTANT TO HAVE HIGHER CAPITAL REQUIREMENTS FOR THE LARGEST, MOST SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONS "
Adam Quinones : "RTRS BERNANKE SAYS BEST ALL-PURPOSE WAY TO STRENGTHEN THE BALANCE SHEETS OF FINANCIAL INSTITUTIONS IS TO INCREASE CAPITAL "
Adam Quinones : "MND - STOCK FUTURES SHEDDING GAINS"
Adam Quinones : "RTRS BERNANKE SAYS A DISORDERLY DEFAULT IN A EUROPEAN COUNTRY WOULD ROIL FINANCIAL MARKETS, AFFECT U.S. "
Adam Quinones : "RTRS - BERNANKE SAYS U.S. BANKS HAVE SIGNIFICANT EXPOSURE TO BANKS IN CORE EUROPEAN COUNTRIES "
Adam Quinones : "RTRS- BERNANKE SAYS EFFECTS ON U.S. BANKS WOULD BE VERY SMALL IF GREECE DEFAULTED "
Adam Quinones : "RTRS - BERNANKE SAYS BANKS THAT FED REGULATES ARE NOT SIGNIFICANTLY EXPOSED TO EUROPEAN SOVEREIGN DEBT PROBLEMS "
Adam Quinones : "RTRS - BERNANKE SAYS NEEDS BUY-IN FROM CONGRESS TO SET EXPLICIT INFLATION TARGET "
Adam Quinones : "this one too..."
Adam Quinones : "that last one interests me. "
Adam Quinones : "RTRS - BERNANKE DOESN'T SEE REAL BARRIER TO SETTING AN INFLATION TARGET, NEEDS TO BE EXPLAINED WELL TO PUBLIC, CONGRESS "
Adam Quinones : "RTRS - BERNANKE SAYS HAS BEEN LONG TIME PROPONENT OF INFLATION TARGET; WOULD HELP ANCHOR INFLATION EXPECTATIONS "
Adam Quinones : "RTRS BERNANKE SAYS LONG RUN PLAN TO REDUCE BUDGET DEFICITS COULD LOWER INTEREST RATES OR PREVENT THEM FROM RISING nWEN4608"