MBS RECAP: Wow
By:
Matthew Graham
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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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JOBS OUTLOOK... (Reuters): U.S. employment growth probably improved in July after a dismal performance in the past two months, but a damaging stand-off over raising the country's debt ceiling may have left businesses with little appetite to expand. Nonfarm payrolls are expected to have increased 85,000 last month after rising only 18,000 in June -- the smallest gain since September 2010. July payrolls growth could shed fresh clues on the speed and strength of the economy's anticipated bounce back after activity almost screeched to a halt in the first half of the year. Gross domestic product rose at a 1.3 percent annual pace in the second quarter after a 0.4 percent rate in the first three months of the year. The unemployment rate is expected to have held steady at 9.2 percent as discouraged job seekers continue to leave the work force. All the gains in nonfarm employment are expected to come from the private sector, which has shouldered the burden of job creation. Private payrolls are expected to have increased by 115,000 -- acceleration from June's 57,000 rise. The gain will still be well below the 153,000 average for the first half of the year. Private employers have added about 2.2 million jobs since the 2007-09 recession ended. Government payrolls are expected to have dropped by about 30,000 in July, a ninth straight month of job losses, but there is a risk of a steeper decline after a government shutdown in Minnesota left thousands of state workers without paychecks.
3:50PM :
All About Tomorrow's Jobs Report and Stocks
Not much to say about tomorrow that hasn't already been said. The screens may flash for another hour and change. Bond yields could be drastically different in 15 minutes or 15 hours. It doesn't really matter in the long run. What matters is how the market reacts to tomorrow's Employment Situation Report. That is at 8:30AM Eastern Time. Don't miss it! Beyond that, bonds are just sitting back, watching and calmly reacting to the emotional convulsions of the stock market.
3:10PM :
10's Skid Against Low Yields Into The Close. MBS Near Highs
Once the bond bulls started charging today they stayed fairly relentless despite a brief pause for a mid day correction. That correction occurred the first time that 10yr notes crossed 2.46, and again the next time it happened, and now again 10's hit 2.46 at the 3pm close and are currently bouncing mildly up to 2.465. Hence the "skidding" designation in the title. Fannie 4.0's struggled all day to keep pace with the Treasury rally, but that's fairly standard procedure for rallies in general, and especially rallies this big. Still, they move into the after hours session near their best levels of the day at 103-11, up just over 5/8ths of a point on the day (21 ticks or 21/32nds). At this point, it's all about tomorrow's NFP. Granted, further reprices for the better may come in if current levels hold for the next two hours, and reprices for the worse could happen if for some silly reason MBS were to fall off the face of the earth, but those would just be very minor course corrections in the bigger picture. The bigger picture isn't necessarily completely dependent on tomorrow's jobs data, but clearly it's widely seen as the one big thing that could cause a big correction or on the other hand, offer "it's blessing" for bonds to continue to operate in these unfamiliar levels.
2:57PM :
Investors Snub ECB Liquidity Promises.
(Reuters) - The Italian government bond yield premium over Bunds rose to euro era peaks on Thursday on signs the European Central Bank had no immediate plans of buying Italian and Spanish bonds to arrest a worsening sovereign debt crisis. The ECB said after leaving interest rates unchanged at 1.5 percent that it would broaden its liquidity operations as it revived its bond buying programme in the secondary market by purchasing Portuguse and Irish bonds. A euro zone monetary source said ECB bond purchases in the secondary market would be confined to those countries, fueling worries that the debt crisis would sweep Italy and Spain into its vortex. "The SMP is back but it's not in the right places, what's going to stop us attacking Spain and Italy over the summer months, cause I can't think of anything," said a trader in London. "There is no buying of Italy and Spain going on and there won't be, so why can't we push these markets to 7 percent yields, I think we can quite easily," the trader said. The 10-year Italian/German bond yield spread widened to 392 basis points, the most since the launch of the euro in 1999 while the equivalent Spanish spread expanded to 400 bps from 386 bps at Wednesday's settlement.
1:45PM :
ALERT:
More Reprices For The Better as Bonds Hold Support
Stocks didn't recover much of their previous losses before seemingly hitting some overhead resistance and heading back down. Smelling that blood, bond markets are pouncing to some extent, and 10's are suddenly back down to 2.474. Fannie 4.0's are doing their best to keep up with what is nearly a full point rally (in price) for 10's, but are only 19 ticks up themselves, at 103-08. The important thing is that there hasn't been a massive correction to this morning's aggressive rallying, and that stability allows MBS to inch higher, and allows lenders enough peace of mind to reprice for the better (though we'd reiterate that peace of mind is in short supply for secondary managers in this market, so don't read any "greediness" into the slow pace at which gains are passed on. it's a necessary evil of the way our industry works).
1:13PM :
New MBS Commentary Post
12:34PM :
Steep Gains in MBS Bounce Back to Previous Highs
The past 30 minutes or so was indeed the fastest pace of improvement of this rally. Despite this, 10yr yields CONTINUE to adhere to the same trendline of "lower lows" and have not broken the 1-2 week pace of the rally. After hitting 103-15, Fannie 4.0s are back down to 103-06, fairly close to where the paused after this morning's more mild rally. Reprice outlook is uncertain. If things settle out at these levels a bit more, you could see reprices for the better from lenders who were already out with sheets. It's very much a "wait and see" environment though.
Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard
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Andy Pada : "I concur...MND's call on lower rates by the end of summer has made me look like quite good."
Bill Clark : "pf 4th repost .125 better"
Adam Quinones : "The percentage bands would be doubled during the opening and closing periods, and broader price bands would apply to stocks priced below $1.00. To accommodate more fundamental price moves, there would be a five-minute trading pause – similar to the pause triggered by the current circuit breakers – if trading is unable to occur within the price band for more than 15 seconds."
Adam Quinones : "The proposed “Limit Up-Limit Down” mechanism would prevent trades in listed equity securities from occurring outside of a specified price band, which would be set at a percentage level above and below the average price of the security over the immediately preceding five-minute period. For stocks currently subject to the circuit breaker pilot, the percentage would be 5 percent, and for those not subject to the pilot, the percentage would be 10 percent."
Adam Quinones : "that is only on individual stocks."
Andrew Horowitz : "i think he is talking about limit down AQ"
Matt Hodges : "when does the trading halt?"
Adam Quinones : "Rate Movers: Short Covering, Stock Selling, Curve Spreads: http://www.mortgagenewsdaily.com/mortgage_rates/blog/223154.aspx"
Victor Burek : "friday we closed at 101-18.. since than flagstar is only .9 better in price"
Victor Burek : "flagstar better"
Victor Burek : "nexbank better"
Adam Quinones : "i see primary/secondary between 80-100bps wide."
Brent Borcherding : "How much juice is in the rate sheets? How far would the market have to turn back on us before we really saw it in rate sheet pricing? I know there are not precise answers, but that's why floating seems safe."
lisamelby1 : "Interbank just sent out reprice for the better..."
Brent Borcherding : "FPF Price Improvement"
Chris Kopec : "Roger....I've seen a few lenders who will do it on Fannie....for Freddie, haven't seen any"
Roger Moore : "Does anybody know if Plaza will allow a DURP when the previous loan had MI. I've heard rumors they will. "
Brent Borcherding : "Impac Price Improvement"
Oliver S. Orlicki : "pfg +25 on the day"
Adam Quinones : "short covering is dominant for sure."
Matthew Graham : "but levels are heady, and the magnitude of changes is skewed higher, so it feels and looks intense (and it is in some ways), but it is also orderly in another sense."
Matthew Graham : "in fact, if we whited-out the levels along the y-axis, it looks like any other 5 day rally"
Matthew Graham : "since the 28th, although the rally has been steep vs the big picture. if you just look at the last 5 sessions, it's been surprisingly orderly, falling almost exclusively within a parallel trend channel (think "2 little railroad tracks on either side of yield movements"). Yesterday's weakness brought it to one side of that channel, and this morning's rally merely right back to the other side."
Matthew Graham : "AR.... here ya go"
Andrew Russell : "weakest side of the trend channel? Do explain"
Matthew Graham : "and that surprise is compounded by the fact that it backed up to the weakest side of the trend channel yesterday, making the swing bigger"
Matthew Graham : "it's not that the pace of the rally has picked up since the 28th, it's just that we're surprised it keeps going and going"
Matthew Graham : "craziest thing in the discussion of how crazy the rally is is that it continues to be in line with a linear series of yield lows"
Adam Quinones : "y'all should follow me on twitter: AQ_MND:
Heavy short covering in rate futures today. Money flows down, price way up. #RATES #FUTURES
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