MBS MID-DAY: Bouncing Back From Yesterday

By: Matthew Graham
MBSonMND: MBS MID-DAY
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FNMA 3.5
101-11 : +0-27
FNMA 4.0
104-12 : +0-19
FNMA 4.5
106-11 : +0-13
FNMA 5.0
108-07 : +0-06
GNMA 3.5
102-14 : +0-19
GNMA 4.0
106-07 : +0-21
GNMA 4.5
108-18 : +0-09
GNMA 5.0
110-16 : +0-06
FHLMC 3.5
100-30 : +0-20
FHLMC 4.0
104-04 : +0-14
FHLMC 4.5
106-04 : +0-11
FHLMC 5.0
108-02 : +0-06
Pricing as of 11:01 AM EST
Morning Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard .
10:30AM  :  ALERT: MBS Moderately Improved From AM Levels on Econ Data
After retail sales shook things up surprisingly little, MBS and TSYs saw some very small gains heading into Consumer Sentiment. The historically low reading on the report helped bonds achieve further gains, but they've all come at a strikingly calm and measured pace. 10yr notes are down to 2.249, about 8.5 bps lower on the day. Fannie 4.0's are up 18 ticks on the day at 104-10 and 3.5's are up 23 ticks at 101-07. That also puts the spread between the two MBS coupons at just over 3 pts, right within the striking distance for more 3.5 originations today. There's no more scheduled economic data today. If gains hold here or continue, you might see a reprice for the better from a lender who doesn't need to control inbound lock volume. Erratic and unpredictable reprice behavior remains a risk due to lock volume.
9:59AM  :  ECON: US Consumer Sentiment Tumbles to Historic Low in August
(Reuters) - U.S. consumer sentiment dropped to its lowest point in more than three decades in early August, as fears of a stalled recovery gelled with despair over government policies, a survey released on Friday showed. The Thomson Reuters/University of Michigan's preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the the median forecast of 63.0 among economists polled by Reuters. High unemployment, stagnant wages and the protracted debate over raising the U.S. government debt ceiling spooked consumers,polled before the downgrade of U.S. sovereign debt by Standard &Poor's. "Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government's role," survey director Richard Curtin said in a statement. The survey's gauge of consumer expectations slipped to 45.7, also the lowest since May of 1980, from July's 56.0 and below a predicted reading of 55.3. The Obama administration received poor ratings from 61 percent of respondents, the worst showing among all prior heads of state. "This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent; it was the realization that the government was unable or unwilling to act," Curtin added. Two-thirds of all consumers reported that the economy had recently worsened, and just one-in-five anticipated any gains during the year ahead. Bad times in the economy were expected by 75 percent of all consumers in early August, just below the all-time peak of 82 percent in 1980. The survey's barometer of current economic conditions was 69.3 in August, down versus 75.8 in July and below a forecast of 74.3.. The survey's one-year inflation expectation remained stuck at 3.4 percent, while the five-to-10-year inflation outlook also flatlined at 2.9 percent in August.
9:53AM  :  Kocherlakota Makes Statement Regarding Dissenting Vote
(Minneapolis Fed Website) I dissented from this change in language because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November. I can summarize my reasoning as follows. I believe that in November, the Committee judiciously chose a level of accommodation that was well calibrated for the prevailing economic conditions. Since November, inflation has risen and unemployment has fallen. I do not believe that providing more accommodation—easing monetary policy—is the appropriate response to these changes in the economy. Going forward, my votes on monetary policy will continue to be based on the evolution of the data on PCE inflation and its components, medium-term PCE inflation expectations, and unemployment.
9:01AM  :  ALERT: Lower Coupon MBS and Longer Dated TSYs Slightly Improved
Even though volume and volatility were historically high overnight, it was one of the slowest nocturnal sessions this week. The major news seems to be a ban on short-selling in France, Greece, Italy, and Spain, which, as one might assume, gave somewhat of a boost to equities and some pause to improvements in Treasuries. Before the announcement 10yr notes made it to 2.246 and are currently at 2.288 having expressed little reaction to Retail Sales Data. MBS are up 8 ticks in 4.0 coupons to 104-00 and 11 ticks in 3.5 coupons to 100-27. 3.5's had their best day of originations yesterday and almost cracked the 100 million dollar level. (total fixed rate originations were around 3.5 billion, with a "B,"). But even though 3.5's still don't have enough market share to take the title belt from 4.0's, they're moving in the right direction, only outpaced 5 to 1 yesterday. So far, markets are trading in fairly logical extensions of their overnight patterns. If that continues, rate sheets might not be as delayed as they have been on other days this week.
8:33AM  :  ECON: Retail Sales Meet Expectations for Largest Rise Since March
(Reuters) - U.S. retail sales in July posted their biggest gain since March, tempering fears that the world's largest economy might be slipping back into recession. Sales climbed 0.5 percent, in line with analyst forecasts and following an upwardly revised 0.3 percent gain in June. Consumer spending accounts for two thirds of U.S. economic activity, and the Commerce Department data indicates the third quarter was off to a decent start. Excluding autos, sales increased 0.5 percent, well above forecasts for a 0.2 percent gain. The figures were bolstered by a 1.6 percent jump in gasoline station sales, in part reflecting the higher cost of fuel. U.S. economic growth was anemic in the first half of the year and unemployment remained elevated, raising worries that the recovery might again falter and triggering speculation that the Federal Reserve might need to resort to additional monetary easing. (Reporting by Pedro Nicolaci da Costa; Editing by Andrea Ricci)
Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard .
Brent Borcherding  :  "Exactly-- Private MI terms are NOT in the legal loan documents, so it can always be left to interpretation, and the lender makes the determination. FHA has it specifically written into the legal loan docs."
Jeff Statz  :  "http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/res/respapmi"
Jeff Statz  :  "so for MI, cancellation based on purchased at 80% but still open to lender interpretation"
Brent Borcherding  :  " I'm more interested in how you get a lender to remove MI in this market. "
Matthew Graham  :  "680k 10yr contracts so far, averages have been near 2 mil"
Brett Boyke  :  "our pricing came in flat to start"
John Rodgers  :  "WF Reprice"
Jeff Anderson  :  "Hey Brent. Lenders still holding off from where we were Wed AM and were about 20 clicks better and 50 bps worse in pricing. Geez."
JudeB  :  "MG, what's volume look like today?"
Brent Borcherding  :  "Thanks, Vic. I see the same."
Victor Burek  :  "4.25 to 4.375 depending on loan size"
Brent Borcherding  :  "After yesterday, what are you all seeing as best ex?"
Andrew Horowitz  :  "some of these guys just refuse to admit their original analysis was wrong"
Scott Valins  :  "he has 3.5% Q3 GDP"
Scott Valins  :  "mortgage talk on cnbc right now"
Chris Kopec  :  "Wonder how much of the Consumer Sentiment was driven by the political environment (perception that DC simply won't come together to solve problems)."
Matthew Graham  :  "RTRS - DUDLEY SAYS HAS REVISED DOWN HIS EXPECTATIONS FOR THE PACE OF RECOVERY GOING FORWARD "
Matthew Graham  :  "RTRS - DUDLEY: SOME, BUT CLEARLY NOT ALL, OF ECONOMIC WEAKNESS IN FIRST HALF OF YEAR WAS DUE TO TEMPORARY FACTORS "
Matthew Graham  :  "RTRS - FED'S DUDLEY: ECONOMIC GROWTH SO FAR IN 2011 "QUITE A BIT SLOWER" THAN EXPECTED EARLIER IN THE YEAR "
Matthew Graham  :  "RTRS - U.S. JUNE INVENTORY/SALES RATIO 1.28 MONTHS' WORTH VS MAY 1.28 MONTHS "
Matthew Graham  :  "RTRS- U.S. JUNE BUSINESS SALES +0.4 PCT VS MAY -0.1 PCT (PREV -0.1 PCT) "
Matthew Graham  :  "RTRS - U.S. JUNE BUSINESS INVENTORIES +0.3 PCT (CONSENSUS +0.5 PCT) VS MAY +0.9 PCT (PREV +1.0 PCT) "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH CONSUMER CURRENT CONDITIONS INDEX AT LOWEST SINCE NOV 2009 "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH CONSUMER SENTIMENT INDEX AND CONSUMER EXPECTATIONS INDEX AT LOWEST SINCE MAY 1980 "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH 5-YEAR INFLATION OUTLOOK PRELIM AUG 2.9 PCT VS FINAL JULY 2.9 PCT "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK PRELIM AUG 3.4 PCT VS FINAL JULY 3.4 PCT "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH 12-MONTH ECONOMIC OUTLOOK INDEX PRELIMINARY AUG 40 VS FINAL JULY 55 "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX PRELIMINARY AUG 45.7 (CONSENSUS 55.3) VS FINAL JULY 56.0 "
Matthew Graham  :  "RTRS - THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX PRELIMINARY AUG 69.3 (CONSENSUS 74.3) VS FINAL JULY 75.8 "
Matthew Graham  :  "RTRS- THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT PRELIMINARY AUG 54.9 (CONSENSUS 63.0) VS FINAL JULY 63.7 "
Matthew Graham  :  "RTRS - FED'S KOCHERLAKOTA-MORE ACCOMMODATION NOT APPROPRIATE GIVEN RISE IN INFLATION, FALL IN UNEMPLOYMENT SINCE QE2 "
Matthew Graham  :  "origination levee broke yesterday"
Victor Burek  :  "we should have better pricing this morning..but it is Friday, wonder how conservative they will be"
Gus Floropoulos  :  "Lock desks r a bit defensive"
Christopher Stevens  :  "GM all...I have baracaded myself behind the lock desk today. "
Scott Valins  :  "were sales forecasts lowered when there were signs of slowing economy and those forecasts were met today?"
Oliver S. Orlicki  :  "would love to settle above 104 to day on the 4"
Matthew Graham  :  "RTRS - US JULY GASOLINE SALES +1.6 PCT VS JUNE -1.7 PCT "
Matthew Graham  :  "RTRS - US JULY RETAIL SALES EX-AUTOS/GAS/BUILDING MATERIALS +0.4 PCT VS JUNE +0.4 PCT "
Matthew Graham  :  "RTRS - US JULY RETAIL SALES EX-GASOLINE +0.3 PCT VS JUNE +0.5 PCT "
Matthew Graham  :  "RTRS- US JULY RETAIL SALES EX-AUTOS +0.5 PCT (CONS +0.2 PCT) VS JUNE +0.2 PCT (PREV 0.0 PCT) "
Matthew Graham  :  "RTRS- US JULY RETAIL SALES +0.5 PCT (CONSENSUS +0.5 PCT) VS JUNE +0.3 PCT (PREV +0.1 PCT) "