Rate Movers: Debt Auctions, FOMC Minutes, Debt Ceiling Debate

PRNewswire-USNewswire/ -- More than half (52%) now cite "too many Americans still unemployed" as their top economic concern according to the latest Job Creators Alliance Poll (www.jobcreatorsalliance.org). In the previous JCA poll, conducted May 7-10, 37% named unemployment as their top economic worry. Worry about the growth in government spending also edged up slightly to 29% in the latest survey, compared to 25% in May. Concern about fuel prices fell in the latest poll. One in five respondents cited the rising cost of gas as their top economic worry compared to 38% who did so in the May poll. The cost of a gallon of self-serve regular has fallen by $0.40 since reaching $3.95 per gallon in early May according to data from AAA. "Regulation, taxes and government spending" were cited by a majority of respondents (65%) as more pressing problems than "not enough regulation and oversight of business" (35%). More Democrats (45%) held this view in the latest survey, up from 37% in May. However, a majority of Democrats (55%) were still more concerned that there is not enough regulation of businesses. Republicans (91%) and Independents (59%) overwhelmingly took the opposite view. The poll was conducted June 25-28, 2011 by YouGov of a representative sample of 1,000 adults nationwide. The Job Creators Alliance is a non-partisan policy organization comprised of American entrepreneurs.

It's a pretty common theme on Friday afternoons to see the sort of drop off in market participation that we're currently seeing. Fannie 4.0's are lucky if they've moved more than 2 ticks in either direction (tick = 1/32nd). Similar story in 10yr benchmarks as yields haven't moved more than 2 bps in either direction as the range continues to narrow. Cruise Control at these levels is fine by us as MBS are near their highs of the day. 4.0's are up 24/32nds overall to 100-19, a quantifiable face-melter. If you haven't seen a reprice for the better from a particular lender, that continues to be a possibility, but especially so from lenders who don't always lead the pack in terms of reprice timeliness and whose initial rate sheets weren't especially aggressive relative to their normal spot in the market. 10yr yields may or may not break into the 2's this afternoon, but at 3.012, they're close. That would be more of an honorary achievement than a meaningful one as volume is now probably too low to read much into it. Still, volume overall is HIGH on the day, among the best days of the year. The fact that this insane volume was seen in a push to get 10yr yields under 3.055 conjures up memories of recent and frequent technical significance at that level. It hasn't been as much on our radar since it's most glorious days in early June and late May, but we'll be watching it into next week in case today's volume is suggesting it should be back on the rotation of the 'usual suspects' for technical consideration as support, resistance, or pivot point.

We've enjoyed a healthy interest rate rally following a surprisingly stagnate read on the labor market in June. And although mortgages have generally lagged the "flight to safety" in benchmark Treasuries, production MBS coupons are benefiting from bargain buying. This is encouraging as it implies sustainable strength is pushing rates lower, not just short-term strategies. In terms of loan pricing, lenders have passed along sizable gains today. According to our model, C30 rebate has improved on average by 41.8bps with the largest appreciations awarded in note rates below 4.75% (up to 60bps in some cases). While gains have been sizable, it does appear that lock desks are holding back margin. The Fannie Mae 4.0 MBS coupon is +23/32 at 100-18, its highest print since June 28th. Yet rate sheets are only as strong as they were two days ago, when the Fannie Mae 4.0 was bid 10/32 lower at 100-08 (owed about 30bps in price). Given the speed and size of today's rally, this isn't a big surprise. Lock desks just want to get their "loans in progress" closed and shipped without having to deal with renegotiations and the possibility of losing a deal at the last minute. Plus we're sorta in between production coupons right now. FNCL 4.0 prices aren't high enough to warrant wide-spread pipeline hedging yet and 4.5 coupon pricing (4.75 to 5.25) is basically already capped out for well-qualified borrowers. We'll need FNCL 4.0s to venture into the 101 price handle before rebate improves enough to rally BestEx quotes lower. As an intraday guide, with lenders keeping a cushion in pricing, you're due a reprice for the better, so they're certainly possible. We're not holding our breath for ground-breaking gains though.