MBS RECAP: Bond Markets Soar After NFP's Surprising Miss
By:
Matthew Graham
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MBS Live: MBS Morning Market Summary
How many "wow's" can 1 month hold? In less than 30 day's, we've seen MBS drop abruptly to 4 month lows, gain half of that back, lose most of it again in ONE HOUR only to surge to better levels than before the sell-off began. We'd like to extend a heartfelt 'thanks' to FOMC data and NFP data... We'd been looking to them for big market moving motivations and they did not disappoint.
(source: MBS Live Dashboard)
This morning's rally was all about NFP. It's really nice to see levels where they are, but please keep in mind that volume is paltry. Many market participants are out for the long weekend and next week is a more appropriate time for celebrations if higher volume and 3/10/30yr Treasury auctions leave similar levels intact. Here's a longer term look at MBS (don't forget we have to peel off about 10 ticks of these prices next Tuesday for the roll. That means that if current levels held exactly, that MBS would be at 103-08).
10yr yields moved decidedly back UNDER the recent range and back inside the previous, extended sideways range. The chart below shows one of the long term downtrends we've been periodically tracking for months. Note how today's "bounce back" takes 10's right to the edge of that trend channel (the red lines), just like the big bounce back did in October. We're not sure if there's anything to this yet, but it is interesting (last time it was a big pivot break back down into a bullish trend, but it's hard to be so bullish as to expect that it would happen the same way again. We can dream):
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
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Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.
9:03AM :
ALERT ISSUED:
Weaker-Than-Expected NFP... Cue "Rally Mode" For Bond Market
You'll very likely not be able to stick your head very far at the window today without hearing about the big miss in today's NFP (the "non-farm-payrolls" component of the Employment Situation Report). The consensus called for 203k and the reality offered merely 120k. Although not a very promising commentary on the state of labor markets, this is naturally quite good for bond markets and interest rates.
Fannie 3.5's are knocking on the door (or ceiling, as it were) of one of their most traveled pivot points in recent memory at 103-10 and currently testing through at 103-11. 10yr yields, are in the 2.07's, and we're not really sure where else they would go right now given that the 2.06-2.09 was the most significant pivot zone before the 3/13 range-breakout.
Remember that it's a short day for bond markets today and volume/liquidity are light. For reference, the hour following the FOMC minutes garnered nearly 500k 10yr futures contracts while the current hour looks to be just under 300k. That's still a good amount of volume, and one of the larger hours in recent memory, but it would be bigger if more folks were in the office today.
So far it looks like the first major resistance is in with 10yr yields having run logically to the most salient pivot-zone. 10yr yields are already back into 2.08's as we speak and Fannie 3.5's already back down to 103-09. It would take a break below 2.065 to change this likelihood, and that would almost certainly result in a break of the 103-10 pivot in Fannie 3.5 MBS.
One last thing to remember is that, although lenders will almost certainly offer noticeably improved rate sheets today, those improvements might not mirror MBS gains ahead of a longer weekend and monthly coupon settlements for Fannie and Freddie 30yr's next week.
Fannie 3.5's are knocking on the door (or ceiling, as it were) of one of their most traveled pivot points in recent memory at 103-10 and currently testing through at 103-11. 10yr yields, are in the 2.07's, and we're not really sure where else they would go right now given that the 2.06-2.09 was the most significant pivot zone before the 3/13 range-breakout.
Remember that it's a short day for bond markets today and volume/liquidity are light. For reference, the hour following the FOMC minutes garnered nearly 500k 10yr futures contracts while the current hour looks to be just under 300k. That's still a good amount of volume, and one of the larger hours in recent memory, but it would be bigger if more folks were in the office today.
So far it looks like the first major resistance is in with 10yr yields having run logically to the most salient pivot-zone. 10yr yields are already back into 2.08's as we speak and Fannie 3.5's already back down to 103-09. It would take a break below 2.065 to change this likelihood, and that would almost certainly result in a break of the 103-10 pivot in Fannie 3.5 MBS.
One last thing to remember is that, although lenders will almost certainly offer noticeably improved rate sheets today, those improvements might not mirror MBS gains ahead of a longer weekend and monthly coupon settlements for Fannie and Freddie 30yr's next week.
8:38AM :
ECON: Non-Farm Payrolls Fall Way Short of Expectations
*NFP +120k vs +203k consensus
* Previous reading of +227k revised up to +240k
* Private Sector +121k vs +218k consensus
* Unemployment 8.2% vs 8.3% last time and forecast
* Participation Rate 63.8 vs 63.9 last time
* Avg hourly earnings revise up from 0.1 to 0.3 last month
* Avg workweek unchanged
* Weekly hours index -0.2 vs +0.5 in Feb
Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade.
* Previous reading of +227k revised up to +240k
* Private Sector +121k vs +218k consensus
* Unemployment 8.2% vs 8.3% last time and forecast
* Participation Rate 63.8 vs 63.9 last time
* Avg hourly earnings revise up from 0.1 to 0.3 last month
* Avg workweek unchanged
* Weekly hours index -0.2 vs +0.5 in Feb
Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.
Jason Adams : "Jack, I have several loans with them right now. I have closed 2 as well. So far so good."
Jack Shotbolt : "Anyone have any input on their experience with Kincetca Credit Union?"
Andy Pada : "We actually have been offering the 100 month loan"
Ira Selwin : "What about regular conv loans? You seeing more than usual at all? I had a bunch come in last month, usually don't see too many"
Andy Pada : "20 Year is the sweet spot on HARP 2.0 - no pricing adjustments"
Ira Selwin : "You guys seeing a lot of 20 year loans AP ?"
Ira Selwin : "nice"
Andy Pada : "cash window is about 53 bps better on the 30 YR and 70 bps on the 20YR"
Ira Selwin : "wf about 30 bps better from yesterday"
Ira Selwin : "Dont y'all expect that much love from your rate sheets this AM remember"
Matthew Graham : "RTRS - U.S. LABOR FORCE PARTICIPATION RATE 63.8 PCT IN MARCH VS 63.9 PCT IN FEB "
Gus Floropoulos : "I guess mmnj's gut was right "
Matthew Graham : "RTRS - U.S. MARCH JOBLESS RATE 8.2 PCT (CONSENSUS 8.3 PCT) VS FEB 8.3 PCT (PREV 8.3 PCT) "
Matthew Graham : "RTRS- US MARCH PRIVATE SECTOR JOBS +121,000 (CONS +218,000), FEB +233,000 (PREV +233,000) "
Matthew Graham : "RTRS- U.S. MARCH NONFARM PAYROLLS +120,000 (CONSENSUS +203,000) VS FEB +240,000 (PREV +227,000), JAN +275,000 (PREV +284,000) "
Gaius Rossini : "time to go bid"
Victor Burek : "wow"
Matthew Graham : "YOWZA"
Dirk Postupack : "I hope you are right MMNJ.......good for us....being greedy"
MMNJ : "i hope so -- if not, this early trickly down can become a tidal wave we do not want....and on a short trading day that is kryptonite for the MBS"
B-C : "because you are right, gut instinct"
MMNJ : "why do I have this feeling the number is going be very disappointing.....like 160K disappointing"
Matthew Graham : "203k last check"
Mike Drews : "what is consensus?"
Gaius Rossini : "thinly staffed of course. if unexpected number, expect volatility i'd guess"
Jeff Anderson : "GM, all. All talking heads saying over 200k, except the Rickster and his 195k, is it that easy today or getting set up for a slight miss? I say 195-215k range. So non-event."
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