MBS RECAP: Late Day Risk Rally Leaves Bond Markets In The Red

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
MBS prices fell fairly steadily into and after the 2pm hour, eventually bottoming out just below current levels at 104-08.  The ostensible culprit is the risk rally into the domestic stock market cash close.  The whole affair occurred at the same time as a rebound in the Euro and was also traced by German Bunds.  With no clear headline motivations and calendar-roll trading also a known motivator for the day, we could also be seeing tradeflow adjustments around the major markets' closing times (3pm for bonds, 4pm for stocks) as well as a technical rejection of a move below 1.71 earlier today in 10yr yields moving quickly back to the other side of the recently narrowing range, which incidentally, would be very close to exactly where 10yr yields look to be bouncing at the moment.  Whatever the case, the damage appears fairly well contained for now and looks worse than it is due to the narrowness of the recent range.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
104-09 : -0-02
FNMA 4.0
106-02 : -0-02
FNMA 4.5
107-02 : -0-02
FNMA 5.0
108-09 : -0-01
GNMA 3.5
105-31 : -0-03
GNMA 4.0
108-26 : -0-01
GNMA 4.5
109-17 : -0-02
GNMA 5.0
110-17 : -0-02
FHLMC 3.5
104-02 : -0-01
FHLMC 4.0
105-22 : -0-02
FHLMC 4.5
106-18 : -0-02
FHLMC 5.0
107-20 : -0-01
Pricing as of 4:05 PM EST
Afternoon 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 afternoon.

3:02PM  :  ALERT ISSUED: Selling-Off Into 3pm Close. May Bounce After, But Reprice Risk For Now
We haven't seen much by the way of cues or correlations in related markets and have to assume that trade-flows and calendar roll trading are having a desultory effect on Treasury prices. Fannie 3.5's have followed and are now down to 104-10, making negative reprices more likely than they were 15 minutes ago.
2:44PM  :  ALERT ISSUED: Light Volume Roll-Trading in Treasuries; Volatility in a Range.
Most other days, the sort of price drop in Fannie 3.5's heading into the 2pm hour would be cause for concern, but viewed in the context of today's narrow range, we instead see that prices moved from 104-15 to 104-12 and are back to 104-13 at the moment, still 2 ticks better on the day. The entire day's range for Fannie 3.5's has been contained between 104-11 and 104-16--another narrow one.

When ranges are as narrow as they are, every little move looks like a bigger deal on the charts. But take a minute to click over the "advanced charts" to see what a small portion of the longer term ranges is accounted for by today's movement.

It's the same story for 10yr Treasuries where yields have scarcely moved outside 1.74 - 1.71. In that tiny framework, even a normally uninspiring Egan Jones Spain Downgrade looks like a huge event around 11:35am. That was followed by a very weird sort of completely flat leveling-off from 12:30-1:40, at which point the bond markets weakened somewhat, resulting in a mild move back toward the center of the day's range in Treasuries and giving the appearance of a more abrupt move in MBS mentioned above.

Volume in Treasury futures is sporadic and choppy due to the rolling-over of contracts from the June delivery to the September delivery, but best we can tell, the pull back in bond markets isn't linked to any headline. It's probably nothing, in fact, but could be a sort of acquiescence to the Euro stopping it's slide without relapsing back toward its lowest levels of the year just after the noon hour. That "weird holding pattern" may have been sort of a "wait and see" on new Euro lows.

No new Euro lows, so here we are, drifting a bit weaker. Weak enough for a reprice in mortgage-land? That'd be a bit harsh considering rate sheets are already in-line with Friday's or slightly worse, but in most cases, human beings make these decisions and there is something viscerally alarming about moving from the highs of the day to the lows. We don't see it as justified, don't think it's a high probability event, but would say that there's a very small risk building for negative reprices at the moment, more pronounced with a break below 104-11.
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.

Jim Leonard  :  "Paul, Greenlight has IO on their ARM products"
Andy Pada  :  "https://www.efanniemae.com/sf/mha/mharefi/pdf/refinancefaqs.pdf"
Paul Carlin  :  "Any body out there see interest only loans?"
Curt Sandfort  :  "we funded one like that recently Terry. It was a private mortgage that had been "modified" to reduce the interest rate. Stearns funded it, it took some pushing on our part though. We ended up showing payment histories on the mortgage before and after, and a letter from the private note holder indicating that the modification was only to lower the interest rate. Good luck!"
Terry Colabrese  :  "The current lender said they sold the loan to Freddie in 2008, and did the mod in 2010. If that's the case, why would Freddie allow them to do the mod, but not allow anyone to refinance it after the modification?"
Chip Harris  :  "I have as well. Just another example of a well thought out guideline. "
Roger Moore  :  "never been able to get it done"
Roger Moore  :  "i've seen that several times"
Terry Colabrese  :  "Has anyone ever heard of this one: Borrower I am refinancing was offered by their current lender to voluntarily modify their loan from 6.625% to 5% in 2/2010. Nothing about the loan mod had to do with distress, just rate reduction. My underwriter is telling me we can't do the loan because Fannie/Freddie won't buy a loan which had any type of modification with it? Doesn't make sense to me, especially if the modification had nothing to do with the loan being late or delinquent?"
S John Murray  :  "Jason here is some info I saved from another post on this from earlier in month Get your company's Seller/Servicer Number at Freddie Mac and call them at 800-373-3343. Give them all of their requested info re: client/property. I've also found that if you don't input the client name and property address EXACTLY the way that Freddie (and Fannie Mae, for that matter) has it in their records (i.e.: Unit 1 versus #1, St. versus Street, you include middle initial but it is not on their records, etc.),"
Andy Pada  :  "Just trying to follow a pattern. If 10 Yr. doesn't parallel bund, then we're in the dark when the bund goes up. The devil you know is better than the devil you don't know."
Victor Burek  :  "i'd prefer 1.70 -1.80"
Gus Floropoulos  :  "1.70-2.10"
Gus Floropoulos  :  "I dont want to see the year go lower, just stay here for a"
Andy Pada  :  "isn't the bund also at all time lows? Shouldn't we see our 10 Yr yield drop below 1.70?"
Matthew Graham  :  "RTRS- EURO FALLS TO LOWEST AGAINST DOLLAR SINCE EARLY JULY, 2010 "
Matthew Graham  :  "RTRS- EURO FALLS AFTER EGAN-JONES DOWNGRADES SPAIN SOVEREIGN RATING TO B "
Matthew Graham  :  "RTRS - EGAN-JONES DOWNGRADES SPAIN SOVEREIGN RATING TO B FROM BB-MINUS, CITES WEAK BANKING SECTOR "
Jason Adams  :  "Do any of you guys know what number you call for Freddie to verify a property address? It is a condo with a unit number and I have tried it severak diffrent ways. When i run it though the site it says yes, when I run LP i get error 63. He is a WF client. I want to make sure the error is not becuase of the address. "

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