MBS RECAP: Heavy Supply And Treasury Selling Weigh On Mortgages

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
MBS faced challenges on both sides of the coin today, and all things considered, held their ground fairly well.  That doesn't mean that ground wasn't lost or that reprices weren't seen.  They were, in fact... a lot of them.  But MBS did a good job of accommodating a massive deluge of new origination supply while also contending with the moderate weakness in Treasury benchmarks.  With respect to the latter, Treasury weakness was well-measured.  10yr yields for instance, backed up EXACTLY to their recently notable pivot point at 1.532 and it seems like a supportive event for it to have held firm, especially considering that we're still very far beyond the pace of the recent long-term rally trend.  All this can be seen in the chart below with the teal lines marking the trend-channel of the rally and the white circles being the floor/ceiling bounce on the pivot point denoted by the red line.  

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
104-29 : -0-14
FNMA 4.0
106-08 : -0-11
FNMA 4.5
107-02 : -0-08
FNMA 5.0
108-05 : -0-06
GNMA 3.5
106-23 : -0-12
GNMA 4.0
108-30 : -0-10
GNMA 4.5
109-17 : -0-07
GNMA 5.0
110-11 : -0-04
FHLMC 3.5
104-21 : -0-14
FHLMC 4.0
105-28 : -0-11
FHLMC 4.5
106-17 : -0-08
FHLMC 5.0
107-14 : -0-07
Pricing as of 4:07 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.

2:47PM  :  ALERT ISSUED: 10's Hit Important Technical Level, MBS hit New Lows, More Reprice Risk
10yr yields hit their 1.532 pivot point discussed earlier, and though they haven't broken any higher in yield yet, MBS are noticeably on the defensive. That said, both 3.0's and 3.5's have been well-bid here at the day's new lows, with a good amount of defense around 104-29 in 3.5's and 102-19 in 3.0s. While that could minimize the overall damage of negative reprices, more are likely on the way given the outright levels.
1:44PM  :  ALERT ISSUED: MBS Hit Lows. Negative Reprice Risk Increasing
Though it's a fairly recent development and despite the fact that Treasuries still look like they can find support before breaking into their weakest territory of the day, MBS already have. Fannie 3.5's are now down 11 ticks on the day at 104-31 and Fannie 3.0's are down 10 ticks at 102-22. Negative reprice risk is at its highest level of the day, with some small amount of insulation offered by the fact that benchmarks have yet to go through similar movements (i.e. the fact that 10yr yields haven't broken above 1.532 is a good thing and might help MBS catch a similar bounce).
1:08PM  :  ALERT ISSUED: No Follow-Through On Rally. Choppier, Riskier, Sideways Again
Although we wouldn't call the brief lunch-time rally a 'non-starter,' it certainly didn't last long. 10's are now clearly moving of their own accord and MBS are sort of trying to mirror and match. Fannie 3.5's look risky, while 3.0's still seem like they could be maintain a sideways trend.

Whatever the case, from where we were about half an hour ago, things have noticeably reversed. 10's are up to 1.514 after making it as low as 1.49. Fannie 3.5's are down to 105-04 and 3.0's to 103-25. Negative reprice risk is slightly increased, but current levels aren't outside the range from earlier in the morning for MBS or Treasuries. Risks are somewhat lessened in that regard, but not absent, by any means.

The bigger issue levels from a technical standpoint mentioned in the last alert (104-03 and 102-22/24 in 3.5's and 3.0's respectively) are just underfoot and in terms of 10yr yields, we'd be most interested in the huge pivot point at 1.532. Watch any of these lines in the sand for warning signs of increasing negative reprice risk.
12:35PM  :  ALERT ISSUED: Still Choppy, But MBS/TSYs Slightly Stronger Into The PM
Coordinated moves in stocks, bonds, EU debt markets and to a smaller extent, the Euro, all suggesting a "risk-off" move taking 10yr yields close to their lowest levels of the morning. We don't see any headline cause-and-effect at the moment (not to say it doesn't exist), but the move looks like it started in equities markets around 12:13pm. This also coincides with a technical break below 1.249 in the Euro. S&P's are off about 4 points since then and 10yr yields down about 2bps.

In terms of MBS, Fannie 3.0's have been the bigger beneficiary, moving up about 2 ticks while Fannie 3.5's have added only about 1 tick. From the perspective of outright gains, it's not enough for a positive reprice, but if you factor in the choppy morning, and if a particular lender was more cautious with pricing as a result, then combine that with some decreased volatility and slightly higher prices, it's starting to feel like one of the "early crowd" lenders might toss out a positive reprice soon. We'd continue watching 105-03 in Fannie 3.5's for negative reprice risk or 102-22 to 102-24 as a spectrum of risk in Fannie 3.0's. (neither of those levels look to be in jeopardy at the moment, but if the recent rally changes course, those levels are where we'd start to care).
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.

Justin Dudek  :  "these days MBS Live is about the only thing you can count on"
Justin Dudek  :  "locked 2 before the reprice came. saved like 2k in rev, pays for the subscription in itself!! "
Roger Moore  :  "REPRICE: 3:46 PM - NYCB Worse"
Jeff Statz  :  "kinetic energy is temporarily expended"
Jeff Statz  :  "i concur. there has been very large sell-offs in the last couple years, and this is not one. it's not even in the same ball park."
Matthew Graham  :  "market overheateth, and market cooleth back off to a less-insane rally pace. But even then, this is a fairly nominal move back considering the immense issuance volume working through MBS. Big Picture, nothing's changed"
Raul Lopez  :  "Market Giveth and market taketh away?"
Matthew Graham  :  "instead, like BB's "exhaustion" comment or like Mike saying "too low Friday, should have expected," markets can't go one direction indefinitely, and I think what we're seeing now is a very moderate "1 step back" after taking about 4 steps forward last week."
Jason York  :  "you can more point to the fact that we have been skyrocketing for the past week, and this is some reprieve"
Matthew Graham  :  "moves like this are emblematic of a market that's NOT trading much on traditional "cause and effect." In other words, there aren't any great headlines or economic releases that you can point to and say, "oh, THAT did this!""
Brent Borcherding  :  "Exhaustion"
Raul Lopez  :  "Whats causing the sell out? Head lines?"
Matthew Graham  :  "most of the places we'd normally observe correlation are much less connected than usual today"
Matthew Graham  :  "for the most part."
Raul Lopez  :  "Stock Lever Disengaged today?"
Neil Merritt  :  "REPRICE: 3:28 PM - Cole Taylor Worse"
Rich DiLallo  :  "REPRICE: 3:24 PM - Stearns Lending Worse"
Steve Chizmadia  :  "Not on the reprice list but Weslend Financial just repriced worse"
Michael Tadros  :  "REPRICE: 3:22 PM - Platinum Mortgage Worse"
Matthew Graham  :  "yeah, very simply put, we overshot the trend, and could even sell significantly more and STILL not be outside the longer term rally trend. Of course, things can still move around in terms of pricing inside that broader trend, but that's why we have "tactical vs strategic' decision-making. Adjust your mix according to personal preference. Intraday reprice alerts are tactical, longer term charts are strategic"
Tom Schwab  :  "Brett Bly, thanks for the perspective reminder!"
Jeff Statz  :  "awesome idea Brett. trending isn't just the two day that we see."
Mike Drews  :  "too low to fast on Friday..this should have expected."
Brett Bly  :  "At least once a day people should go to advanced charts and check out at least a 30 day chart for perspective. It helps me and my clients a lot."
Grant R. Menard  :  "Well said Matt.. that was my point, although it was said condecending... I regress."
David Z.  :  "No worries MG, just silently locking lots of loans!:)"
Joel Marks  :  "Well said. Remember, sarcasm is not just a river in Egypt...or something like that."
Matthew Graham  :  "i'm actually concerned that a portion of the silent masses that watch the chat, but don't chat, might not be aware of the extent to which some of the regulars are joking around about rates, especially on a day like today, which thus far, has been a long-term net-positive in the sense that best-ex remains at 3.625 despite weakness and benchmark yields found support at an important, high volume pivot-point. So if you're one of those in the silent masses, I wouldn't read too much into a few of the"
Tom Schwab  :  "REPRICE: 3:12 PM - Chase Worse"
Michael Tadros  :  "REPRICE: 3:10 PM - Interbank Worse"
Grant R. Menard  :  "if your mortgage career hinged obn a .25% ysp/srp swing. then yes.. time to start tyoing that resume :)"
Matt Hodges  :  "hey, it was fun while it lasted PC"
Joel Marks  :  "working on my resume now."
Matt Hodges  :  "you might as well quit the biz. Rates will only climb from here"
Andrew Horowitz  :  "Oh stop complaining we are down 13 ticks and the 3.5 is still at 104-30 "
Jason Adams  :  "yup rates always take elevator up and the stairs down!"
Michael Tadros  :  "no more than .25 here"
Michael Tadros  :  "REPRICE: 3:02 PM - Flagstar Worse"
Joel Marks  :  "how much worse are we seeeing?"
Eric Franson  :  "REPRICE: 2:58 PM - Wells Fargo Worse"
Jason Adams  :  "REPRICE: 2:58 PM - Kinecta Worse"
Michael Tadros  :  "REPRICE: 2:57 PM - FPF Wholesale Worse"
Michael Tadros  :  "REPRICE: 2:47 PM - Provident Funding Worse"
Michael Tadros  :  "REPRICE: 2:44 PM - Suntrust Worse"
Prime4Banks  :  "REPRICE: 2:25 PM - 360 Mortgage Worse"
Michael Mitchell  :  "It's not on the reprice list but Bay Equity just repriced for the worse..."
Dennis Lykins  :  "depends if she was late at all on her mtg. if late, 3 year applies except by exception."
Dennis Lykins  :  " just got an exception on one, six months short of the three years. picture perfect exception request, all 700 scores, no late EVER on credit report except mtg prior to short sale, primary wage earner lost job, etc etc. "
john murphy  :  "JA. USDA will take them with a credit waiver, but it has to be rock solid. most lender overlays will restrict so if you're not submitting the ConCom to USDA direct u may be SOL"
Andrew Horowitz  :  "really going out on a limb there aren't they?"

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