MBS MID-DAY: Sideways Again

By: Matthew Graham
MBSonMND: MBS MID-DAY
Open MBSonMND Dashboard
FNMA 3.5
101-09 : +0-07
FNMA 4.0
103-32 : +0-00
FNMA 4.5
105-27 : -0-03
FNMA 5.0
107-20 : -0-07
GNMA 3.5
102-21 : +0-08
GNMA 4.0
105-30 : +0-01
GNMA 4.5
108-01 : -0-04
GNMA 5.0
109-27 : -0-05
FHLMC 3.5
101-03 : -0-08
FHLMC 4.0
103-28 : +0-01
FHLMC 4.5
105-20 : -0-04
FHLMC 5.0
107-14 : -0-06
Pricing as of 11:04 AM EST
Morning Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard .
10:33AM  :  US Bank Earnings up From a Year Ago
(Reuters) - U.S. bank earnings continue to increase but the trend is mostly due to institutions setting aside less to guard against losses, a top regulator said on Tuesday. The Federal Deposit Insurance Corp said that the industry earned $28.8 billion in the second quarter, a $7.9 billion increase from a year before. The agency once again warned these earnings increases can not be sustained simply by reducing the amount set aside for losses. "As the levels of loss provisions approach their historic norms, the prospects of earnings improvement from further reductions in provisions diminish," FDIC Acting Chairman Martin Gruenberg said in remarks prepared for delivery. Bank revenues continue to fall. During the second quarter net operating revenues fell $3 billion, or 1.8 percent, from the levels recorded a year ago, the agency said. In a positive sign for the industry, bank loan balances grew during the second quarter for the first time in three years, up $64.4 billion, or 0.9 percent. The number of banks on the agency's "problem list" fell for the first time in 15 quarters, dropping to 865 in the second quarter from 888 in the first quarter. (Reporting by Dave Clarke, Editing by Dave Zimmerman)
10:32AM  :  ECON: Richmond Fed Factory Index -10 in August from -1 Previously
(Reuters) - A gauge of factory output on the U.S. eastern seaboard fell further into negative territory in August on slower growth in new orders and shipments, the Federal Reserve Bank of Richmond said on Tuesday. The Richmond Fed said its composite index of factory activity in its district fell to -10 USRFDM=ECI from -1 in July. The Philadelphia Fed's factory survey released last week showed output plunged in the Mid-Atlantic region during the same period. The Philly Fed reading dampened hopes for a quick revival in U.S. economic growth. Any reading below zero in the Richmond Fed index indicates contraction in the region's manufacturing. The survey covers factories in the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. The Richmond index is a measure of factory shipments, new orders and employment in the region. (Reporting by Jason Lange; Editing by James Dalgleish)
10:28AM  :  ALERT: Stocks and Bonds Battle it Out. MBS Back in The Green
Things are significantly more volatile this morning as opposed to yesterdays exceedingly sideways range-trading. Implied volatility based on levels in the options market is through the roof indicating that markets are accounting for the possibility of wide swings in the short term. Speaking of wide swings, after opening in the red, stocks shot up about 15 points in 20 minutes and carried that rally through the 10am release of New Home Sales. Just before that, Bond markets rallied on the indecisive domestic stock market open. That brought MBS to unchanged on the day and 10yr yields into the 2.11's. When stocks staged their quick paced rally, bond markets faltered and looked like they might head back to the morning's previous weaker levels, but in the past few minutes, stocks hit another ceiling before reaching yesterday's highs and bond markets are once again pressing forward. 10yr notes and MBS just ticked into positive territory with the former at 2.1075. Fannie 4.0's are 2 ticks better on the day at 104-01 and 3.5's are 6 ticks better at 101-08. Only the jumpiest, itchiest-trigger-fingered lenders might reprice for the better here. Things are too volatile otherwise, and some lenders aren't even out with their first sheets yet. Those who aren't out yet may be further delayed on this morning's surge in volatility. However, if current levels in MBS are able to hold, lenders who WERE ALREADY out with weaker pricing this morning are increasingly likely to reprice for the better as time goes by, but that assumes that the morning's weaker rate sheet offerings were not a factor of pipeline control. Simple world we live in these days, right? Let us know if you have questions or need clarification on any of this. There's a lot going on.
10:12AM  :  ECON: New Home Sales Fall. Homes For Sale at Record Low
Sales of new single-family homes hit a 5-month Low in July, falling to an annual rate of 298k from June's 300k. Economists polled by Reuters had been expecting 310k. In percentage terms, this is a 0.7 pct decline and follows a decline of 2.9 pct in June. Sales actually increased in the Northeast and Midwest, but were offset by the declines in the South and West regions. The NE region moved up 100% from 14k units to 28k units, while the other three regions moved less than 10%. The median price of New Homes sold in July stood at $222,000 which is up 4.7 pct from a year ago. The total number of homes for sale across all regions fell to another record low: 165k in the current report vs 166k in July.
9:25AM  :  ALERT: Stocks Stronger Overnight, MBS and TSYs Weaker
Today is kicking off in similar fashion to yesterday with stocks stronger/bonds weaker from the European and Asian sessions. 10yr yields backed up to the mid-point of the "counterattack" trend channel (linked below). With a lack of "risk-off" inspiring headlines, auctions to get through, and uncertainty over the Jackson Hole outcome, this gradual trend of higher yields in 10's may not end here. But so far this morning, 10yr yields have moderated somewhat, now under 2.15 after getting into the 2.16's early this morning. Their next major move likely depends on the domestic stock market open at 9:30. MBS are weathering the storm slightly better. Fannie 4.0's are down 3 ticks at 103-29 and 3.5's are down 2 ticks at 101-01. There's currently a pivot between yesterday's prices and today that we'll watch for any ongoing resistance to further gains. Rate sheets might not be too delayed this AM, but may be slightly weaker if current prices prevail. The only economic data of the morning hits in just over half an hour with New Home Sales at 10am. Then there's the 2yr Treasury Note Auction at 1pm.
8:58AM  :  The Case Against Another Fed Bond Buying Program
(Bloomberg) - St. Louis Federal Reserve Bank President James Bullard, who was the first Fed policy maker to urge the round of bond purchases that started last year, said the central bank isn’t signaling a third stimulus program with its commitment to keep rates near zero through mid-2013. “The most likely outcome for the U.S. economy is still that the economy continues to grow at a moderate pace through the second half of the year,” Bullard said late yesterday in a telephone interview. “If the economy is substantially weaker than expected, we could take more action, especially if it was coupled with a renewed deflation risk.” Bullard, who doesn’t vote on monetary policy this year, said he would have dissented against the Aug. 9 Federal Open Market Committee statement that for the first time attaches a date to its pledge to keep borrowing costs in a range of zero to 0.25 percent. Previously, the FOMC promised to keep interest rates low for an “extended period.” The change increased speculation among some economists that the Fed will begin a third round of asset purchases, with Goldman Sachs Group Inc. Chief Economist Jan Hatzius predicting a “greater-than-even chance” of more bond buying. The Fed in June concluded a $600 billion bond-purchase plan, and has maintained its balance sheet near record levels by reinvesting proceeds from its securities holdings. A new round of bond purchases “does not follow naturally” from the 2013 pledge, “because I think we have to get more information about how the economy is going to develop in the second half of the year,” Bullard said. Goldman Sachs’s forecast stems from the firm’s economists having a “more pessimistic outlook than most” economists, he said.
8:10AM  :  New MBS Commentary Post

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard .
Jason Zimmer  :  "as long as the rate sheets stay sideways as well"
Victor Burek  :  "flagstar same as yesterday"
Steve Chizmadia  :  "As you said yesterday. Sideways on the 4.0% coupon at 104 would not be a bad thing"
Matthew Graham  :  "stocks consolidating near highs, either a reversal or continuation in the works"
Steve Chizmadia  :  "It would be really nice to see 104 hold today"
Andrew Horowitz  :  "makes sense that gama would be going nuts this week, everyone is trying to be on the right side of Ben's mouth "
Matthew Graham  :  "as AQ mentioned last week, we've seen plenty of instances of disconnect between implied and realized volatility"
Matthew Graham  :  "not necessarily"
Jeff Anderson  :  "Roller coaster...engage.?"
Matthew Graham  :  "(refresher: "gamma" = volatility implied by trading in the options market)"
Adam Quinones  :  "highest ive seen it since Feb."
Matthew Graham  :  "just did a double take on that AQ"
Adam Quinones  :  "gamma on fire."
Matthew Graham  :  "RTRS - US HOMES FOR SALE AT END OF JULY 165,000 UNITS, RECORD LOW, VS JUNE 166,000 UNITS"
Matthew Graham  :  "RTRS - US JULY MEDIAN SALE PRICE $222,000, +4.7 PCT FROM JULY 2010 ($212,100)"
Matthew Graham  :  "RTRS- US JULY NEW HOME SUPPLY 6.6 MONTHS' WORTH AT CURRENT PACE VS JUNE 6.6 MONTHS"
Matthew Graham  :  "RTRS- US JULY HOME SALES NORTHEAST +100.0 PCT, MIDWEST +2.4 PCT, SOUTH -7.4 PCT, WEST -5.9 PCT"
Matthew Graham  :  "RTRS- US JULY SINGLE-FAMILY HOME SALES -0.7 PCT VS JUNE -2.9 PCT (PREV -1.0 PCT) "
Matthew Graham  :  "RTRS- US JULY SINGLE-FAMILY HOME SALES 298,000 UNIT ANN. RATE (CONS 310,000) VS JUNE 300,000 (PREV 312,000) "
Ken Crute  :  "its not unheard of to price out a day or 2 to help loan ops catch up"
Ken Crute  :  "not sure how much it has to do with real prcing or the cries for help from operations, "
Tony Cardinal  :  "wow really? seems extreme"
Ken Crute  :  "am rate sheet .375% to .25% worse than yesterday "
Jeff Anderson  :  "GMAC off about .30. "
Brent Borcherding  :  "Anyone have rates? Same as yesterday?"
Jeff Anderson  :  "Did you guys see the head of S&P is stepping down? Strange timing, hmmm."
Matthew Graham  :  "water barrels, ammunition, and toilet paper"
Christopher Stevens  :  "If people start to feel gold is a little rich and want to take some profit do they put cash in the 10YR driving yld lower? Or do they keep money in gold thinking it goes higher?"
Adam Quinones  :  "*to and through"
Adam Quinones  :  "i think Europe got us through 2.85"
Adam Quinones  :  "drip, drip, drip"
Matthew Graham  :  "philly fed certainly the catalyst for the break of 2"
Adam Quinones  :  "yeh the continued can kicking in Europe def helped us get back into the 2 handle. I think econ data took over from there (ignited the convexity vortex)"
Matthew Graham  :  "it's just about answering the question of why 10's went lower than 2008, and lower than 2010. the one thing in the picture now that wasn't then is EU debt crisis"
Adam Quinones  :  "that brutal Philly Fed print pretty much baked in an ISM read under 50 (= contracting manufacturing)"
Matthew Graham  :  "erase the eu situation and we're at 2.30+ IMO. But domestic economic weakness? erase that and maybe we'd be over 3%. certainly a much bigger piece of the pie"
Adam Quinones  :  "with more emphasis on 1st two."
Adam Quinones  :  "weak econ data around the world + unexpectedly dovish FOMC (willing to act Fed) + Europe"
Matthew Graham  :  "europe is piece of the pie"
Matthew Graham  :  "BB, discussed some of potential levels in 10's u asked about earlier here: http://www.mortgagenewsdaily.com/mortgage_rates/blog/225772.aspx. also, the dotted red line in the lower chart is where 10's bounced this morning"
Brent Borcherding  :  "Why then, in your opinion, did they go below 2?"
Jeff Anderson  :  "I'm thinking the same way, AQ, but I'm guessing that there are those out there expecting some sort of QE3 announcement. If he uses the same language, I'm guessing the stock market sells off a bit. I bet they're burning up the Fed Speak Thesaurus this week."
Brent Borcherding  :  "Any more than the "prepared to act if necessary" verbige."
Adam Quinones  :  "agreed Matt. Buy the Rumor, Sell the News. I know MG keeps pointing out Europe, and they do play a role, I just dont think Europe was the reason 10s were under 2.000%"
Matthew Graham  :  "any more QE?"
Brent Borcherding  :  "Markets can't truly be expecting any more than that can they?"
Adam Quinones  :  "he cannot ignore expensive food and energy prices...that means he'll be cautious about another bond buying program. At this point I think the market knows consumers are being squeezed, so more bond lifts might not work the same way they did last year (balance sheet effect = stock rally)"
Matt Hodges  :  "buy the rumor"
Adam Quinones  :  "he will echo the FOMC statement and say the Fed is prepared to act...."
Brent Borcherding  :  "Not surprised by anything, but what's your gut tell you, AQ?"