MBS RECAP: 1/30/2012

By: Matthew Graham
MBS Live: MBS RECAP
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FNMA 3.5
103-22 : +0-00
FNMA 4.0
105-19 : +0-00
FNMA 4.5
106-26 : +0-02
FNMA 5.0
108-00 : +0-01
GNMA 3.5
105-02 : -0-01
GNMA 4.0
107-22 : -0-01
GNMA 4.5
109-05 : -0-02
GNMA 5.0
110-24 : +0-00
FHLMC 3.5
103-16 : +0-00
FHLMC 4.0
105-10 : -0-01
FHLMC 4.5
106-10 : +0-03
FHLMC 5.0
107-20 : +0-05
Pricing as of 4:00 PM EST
Afternoon Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard.
3:41PM  :  ALERT: After "Pin Drop Quiet" Day, MBS Weaken Slightly. Infinitesimal Reprice Risk
It's almost as if markets slept in for the next 4 days of the week after the morning alarm indicated that Greece's bond-swap negotiations were still in limbo. We could well imagine the potentially interested bond trader saying "wake me up when it's over." In this case the "it" would refer to just one of the many phases in the ridiculous parade of "maybes," "yeah buts," and "it's unclear whether or nots" that have come to define the Greek "situation."

Perhaps there's some sort of script at work here.... Risks are called out, markets fear Greek withdrawal, trade accordingly, then the counterpoint comes in, then it's shot down, then new news about some program/initiative/meeting/phone call/negotiation/summit/etc... takes markets back to the other side of the ping pong table, then fails to pan out as planned, leading back to the same initial questions that sparked the panic. Vicious cycle x 10.

But fool me 17-18 times, shame on me! Market participants are starting to simply not react to the wolf cries, instead waiting for meatier details to emerge. And so it is that days like today happen... Bond markets fly in quite bullish holding patterns, ready to break the range or bounce within it, but not fully committing to either one of those moves until more conviction is inspired.

On a side note, we'd almost completely disregard the late day price declines in MBS. Most of the weakness hit right at the 3pm close as volumes in benchmarks picked up for the first noticeable time since Friday morning, a clear indication that tradeflows were pushing MBS lower in illiquid, after-hours trading conditions (as opposed to MBS experiencing weakness for some fundamental reason). Most lenders will not think twice about this weakness, but one or two might see justification for a negative reprice.
2:23PM  :  NY Fed Research: House Price Booms, Current Account Deficits, and Low Interest Rates
One of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account deficits, not only in the United States but also in other countries that have subsequently experienced the highest degree of financial turmoil. A progressive relaxation of credit standards can rationalize this empirical observation. Lower collateral requirements facilitate access to external funding and drive up house prices. The current account turns negative because households borrow from the rest of the world. At the same time, however, the world real interest rate counterfactually increases. Nominal interest rates departing from a standard monetary policy rule in leveraged economies, as well as foreign exchange rate pegs in saving countries, help reconcile a demand-based explanation of house price booms and current account deficits with the evidence on real interest rates...
11:47AM  :  Eerily Stable, Given Price Levels
For being at all-time highs, MBS have been trading in a range so narrow that it borders on silliness. This is partly a factor of organic resistance and partly a factor of broader bond markets simply trading narrow ranges this morning.

If 10's were to break much above 1.85, then the supportive pivot seen on the MBS chart (around 103-25) could be at risk. Even then, we're talking about a price level that is less than eighth away from where we are now!

Moral of this short story is that not much is going on at the moment. Volume has been even-keeled and there's a fair bit of it, but everything is driving sideways sideways sideways for now.

follow link contains some longer term charts:
Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBS Live Dashboard.
Andrea Wine  :  "radian goes off AU approval up to 50"
Ira Selwin  :  "50 is available as well"
Ira Selwin  :  "*not always KC"
Ken Crute  :  "45"
Caroline Roy  :  "max dti on PMI these days?"
Andrew Horowitz  :  "interesting article , we all knew Freddie and fannie were making life more difficult, this helps explain Why http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold"
Ira Selwin  :  "John - I think it's hard to see with the market improvement right now. Had the market been flat since the gfee announcements, you definitely would have seen more of an impact."
Chip Harris  :  "John, I think that the gains we have seen have offset the gfee. "
John Paunan  :  "I just remember a bunch of announcements from lenders, particularly Interbank, that today was going to be much worse because the g-fee was going to be assessed. Their current ratesheet is killer, without a hint of an adjuster on their extended locks. Not that i'm complaining, but I would have held off locking last week, that's for sure!"
Eric Krumplitsch  :  "You can always refi from an arm to a fixed and the 5% doesn't matter."