MBS RECAP: Decision Time Again
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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
.
4:20PM : The Day Ahead: Q1GDP, Durable Goods, Headline News
Tomorrow’s
calendar may be among the shortest of the week, but big things can come
in small packages, especially when bundled together. Of the 3 reports
printing tomorrow, all of them hit at 830am. Battling it out for the
title of tomorrow’s most significant market mover will be: Durable Goods
, Q1 Final GDP and Corporate Profits. After a 2nd revision left
preliminary GDP unchanged at 1.8%, tomorrow’s estimate on the final
“real” reading is for +1.9%. Durable Goods are also seen improving from
their previous reading of -3.6% to +1.5% tomorrow. Rounding out the
trio, Corporate profits are also expected to get “less bad,” moving from
-0.9% previous to -0.8% in tomorrow’s report. Though this piece of
data isn’t generally considered to be of the same importance as Durables
or GDP, any major deviation in any of the 3 reports—assuming there’s no
major disagreement in the general economic sentiment expressed by the
other two—could be a market mover tomorrow. Ongoing developments in
the next act of the Greek Bailout drama remain a constant needle mover.
Watch out for unexpected headline news...
3:18PM :
New Mortgage Rate Watch Post
2:44PM :
ALERT:
Gains Extended. Reprices for Better Possible
Mortgages have rallied from the get-go this morning and lenders accounted for it in their first release of rate sheets. Rebate is 28.2bps better on average according to our loan pricing data. But the MBS rally didn't stop after lenders issued rate sheets, they just kept on ticking higher and higher. Currently the Fannie Mae 4.0 MBS coupon is +16/32 at 101-12. These are levels where lenders will consider repricing for the better. Although if it were our call we'd likely wait until Fannie 4.0s reach 101-15. Otherwise, given the intraday volatility we've experienced over the past three days, we'd prefer to pass along additional gains in the morning once the rally is confirmed.
1:40PM :
Rising Production Costs an Issue for Mortgage Bankers
Independent mortgage banks and subsidiaries saw a huge dip in profitability as the average they made on each loan originated dropped from $1,082 in the fourth quarter to $346 in the first quarter. According to the MBA’s Mortgage Bankers Performance Report, lenders increased their overall revenues but profits suffered because of higher production costs. This made it difficult for mortgage companies to manage staff levels which in turn caused higher production costs. Walsh continued, "In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study." Loan production revenues increased substantially from an average of $2,102 in Q4 to $2,297. Within this number, loan origination fees rose from $1,443 to $1,569; correspondent and broker fee income decreased to $138 from $143 and "other originations-related income" rose from $516 to $590. Expenses however more than kept pace. Direct loan production expenses rose from $4,664 to $5,471 driven, as Walsh said, by personnel expenses which rose to $3,640 from $3,124. The cost of fulfillment and production support employees rose by over $167 and $134 per loan respectively while sales personnel costs were down $8 per loan. Average production volume was $164 million per company, down from $286 million in the fourth quarter and the average number of loans originated was down from 1,296 to 793. The loss of business came mainly from the refinancing share which dropped from 60.13 percent of volume in the fourth quarter to 48.23 percent and in the share of the dollar volume from 63 percent to 50 percent.
1:17PM :
30yr TIPS Auction Fetches Record Low Yield
At a high yield award of 1.744, today's 30yr Treasury Inflation Protected Securities (TIPS) auction set a record low yield, with the next lowest seen on 8/23/2010 at 1.77. Additionally, the bid-to-cover ration was by far the largest ever coming in at 3.02 with the next closest historical example at 2.78.
1:03PM :
Recent Volatility Subsides. MBS in Narrow, High Range
The swings between the high and low MBS prices had been aggressively expanding since the 21st. But after reaching this morning's highs, the trading range today looks nothing like that of the past 3 days. No more than 3/32nds have separated any move between a high and a low. Contrast that with numerous instances of moves bigger than 6/32nds in recent sessions. The decrease in MBS Price volatility coinciding with what are nearly the best prices of the year is always going to be a good situation for rate sheets, and we're seeing that today as rates are fairly close to their best levels of the year. Additionally, the spread between the 4.5 and 4.0 Fannie Mae coupons, today crossed that magical "3 points" mark with 4.0 coupons at 101-10, while 4.5 coupons stand at 104-09. That's 14/32nds and 8/32nds up on the day respectively. Both are at their best levels of the day.
11:28AM :
Treasury Supply: New Issues to Raise $44 Billion in Cash
Treasury just posted the terms of next week's 2-yr, 5-yr and 7-yr debt auctions. In total Treasury will offer $99bn in new coupons. The package consists of $35bn 2s on Tuesday, $35bn 5s on Wednesday and $29bn 7s on Thursday. All of these amounts are unchanged from previous auctions. With $55.25bn in public debt maturing on June 30th, this auction cycle will raise $43.75bn in new funds for the government.
11:20AM :
New MBS Commentary Post
Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard
.
Rob Clark : "citi reprice"
Adam Quinones : "Equities enjoying it. Euro too. Bonds reacting well so far. "
Brett Boyke : "here be why - Greece Agrees on 5-Year Austerity Plan With EU, IMF - Reuters "
Brett Boyke : "dow just recovered by almost 100 pts in a flash"
Ira Selwin : "FAMC price change"
Jason York : "I'm not positive, but I can't imagine why it would be different"
Christopher Max : "Quick Question. FHA JUmbo. 1st and 2nd being paid off. 2nd is not purchase $$ and has been drawn on in the past year. Is FHA Jumbo the same as FHA where you can do rate/term on that? "
Matthew Graham : "THAT would look like a positive shift whereas THIS just looks "meh....""
Matthew Graham : "the fact that it's occurring CLOSE TO but not BETTER THAN the best levels of the year, and that it's occurring in such high volume further supports that stance. The take-away is this: "The market is rallying. And while there are certainly economic reasons for the increased Flight-to-Safety type demand, the extent to which we are rallying today and the volume of the rally are less confidence inspiring than if we were seeing lots of new long positions come in, push bond prices into new annual hi"
Matthew Graham : "Now to BB, I think that potential is there. but rather than being dependent or related to short-covering, I see the potential consolidation and move lower as a factor of the economic environment and not as resulting from the particulars of trade-flows. We just comment on short-covering when we see it in order to add a layer of understanding of current price movements. In this case, massive short covering speaks in some way to an indecisive and less convicted rally."
Matthew Graham : "not something that will "cause" good or bad things to happen for MBS in the future necessarily"
Matthew Graham : "it's more of an effect as opposed to a cause, in other words"
Matthew Graham : "jeff first. I don't really have an opinion on whether it's a good or bad thing. We know that dealers had been super short, and that there has been plenty of potential for rallies to create short covering. "
Brent Borcherding : "Are you seeing this as a bit of a pause, catch your breath (short cover) and then a continued move lower, MG?"
Jeff Anderson : "That's a good thing for us, right. :)"
Matthew Graham : " not to change the subject, but the reasonably low level of volatility in 10yr yield and MBS price movements today is something I wouldn't normally pair up with the moderately high amount of volume that's been seen. Open Interest Fell off the face of the planet amidst high and stable prices. Sure sign of massive short covering. "
Steven Stone : "the g-ii swaps are really wide too"
Jeff Anderson : "Regarding pricing, AQ, looks like we're back at best levels of the year, but it will take a huge move to get much lower based on the various coupons I'm looking at, unless the lenders are just being overly stingy prior to the next move lower."
Steven Stone : "im guessing its a supply issue...but they do that every once in a while..."
Steven Stone : "just called wells for an indication..bad news is they arent taking assignments on the ginnie 3.5 cpns"
Adam Quinones : "re: defending Ben. Just remember the road to recovery is long. it's a monetary process as well as financial and political. everything has to click. Ben set the game in motion long-ago. His plan will require adjustments but eventually all the stars will align and economic innovation will be the end result. "
Adam Quinones : "6/8 for 4.5 notes"
Ken Crute : "best pricing of the year yes, 4.375% very best exectuion, 60LTV 740 30day lock "
Adam Quinones : "Ben is playing chess. "The People" are playing life/death checkers"
Andrew Horowitz : "the "people" are fed up"
Jason Wilborn : "pretty close AQ"
Adam Quinones : "if not, we're pretty darn close...."
Adam Quinones : "best pricing all year?"
Adam Quinones : "HERE IS A RECAP OF BEN'S Q&A: http://www.mortgagenewsdaily.com/mortgage_rates/blog/216972.aspx"
Adam Quinones : "Ben wants inflation...but he needs money creation to happen through cost-push wage growth and rising payrolls. with banks in a holding state until they get the bad assets through the system (REAL ESTATE), lending will suffer. we have to find another way to get money to Main Street."
Adam Quinones : "HERE IS DEFLATION SCARE: "RTRS - BERNANKE SAYS AS PRICE OF OIL DECLINES, THERE WILL BE SOME DECLINE IN CORE MEASURES OF INFLATION ""
Brent Borcherding : "Sub-2.5 is in the cards, if things get bad enough to scare below 2.0....additionally QE will be in effect before it happens."
Jason Wilborn : "deflation is the bigger risk right now"
Jason Wilborn : "it will be a rocky road to get there, but I think it will happen"
Adam Quinones : "put it on the board. JR waves in 2.60% by end of July"
Jason Wilborn : "I think we see all time low in Treasury Yields at some point"
Brett Boyke : "after seeing the world hold it's breathe over Greece, they went to school on what not to do. It's all political posturing"
Andrew Horowitz : "like AQ says though the monkey wrench in the potential follow through rally in bonds is the Debt ceiling issue"
John Rodgers : "Mid/late July"
Adam Quinones : "By AUGUST?"
Adam Quinones : "ok ok. how soon JR?"
John Rodgers : "After QE ends 10 Yr drops to 2.60"
Adam Quinones : "other folks/opinions appreciated."
Adam Quinones : "the debt ceiling on the other hand...well that issue could cause chaos."
Adam Quinones : "Big Picture econ fundamentals seem to be overriding that concern Tony. "
Tony Cardinal : "what are peoples thoughts of what is going to happen to rates at the end of June after QE2 is done? "