MBS RECAP: Seeking Some Sort Of Equilibrium Before FOMC Sneak Peek

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
Despite a hefty dose of volatility, it could be worse for MBS... They could have been Treasuries today, where 10's lost about as much ground today as MBS have lost all week.  Europe moved markets overnight and while ECB and Spain headlines remained relevant, markets began trading of their own volition ahead of Bernanke's congressional testimony tomorrow.  Whether it ends up being the case or not, markets increasingly view that testimony as being the best sneak peak window into the possibilities for the June 20th FOMC Announcement, a rather important one given the impending expiration of "operation twist" and the recently greater speculation that economic conditions could warrant further easing.  It seems to make sense that bond markets would seek some sort of neutral ground while still remaining at decidedly stronger long term levels.  As the previous all-time low for 10yr yields, 1.67 was certainly one of the most important long term pivot points, and that's exactly where 10's went this week.  In similar fashion, MBS have returned to their previous all time high bounce in late May at 104-22

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
104-21 : -0-06
FNMA 4.0
106-04 : -0-03
FNMA 4.5
107-01 : -0-01
FNMA 5.0
108-07 : +0-02
GNMA 3.5
106-16 : -0-07
GNMA 4.0
108-29 : -0-03
GNMA 4.5
109-17 : +0-00
GNMA 5.0
110-14 : +0-03
FHLMC 3.5
104-14 : -0-07
FHLMC 4.0
105-23 : -0-04
FHLMC 4.5
106-16 : -0-02
FHLMC 5.0
107-16 : +0-01
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.

2:28PM  :  ALERT ISSUED: More Of The Same... MBS Recovering Nicely
Despite an uptick in new origination volume in MBS this afternoon (not to mention the $8 bln+ so far this week), Fannie 3.0s and 3.5s are trading well with a reasonable portion of earlier losses recovered.

For Fannie 3.0s, that means 102-07-ish, up from an earlier trough at 101-31 (still quite a distance to the morning highs at 102-16+ though). Fannie 3.5's fought for and largely held supportive levels around 104-17 and are now back over a short term pivot at 104-22, currently 104-24. 10yr yields are into the 1.64's and approaching 1.63's, their lowest levels since noon.

It's not out of the question to see one of the characteristically early-to-act lenders reprice positively when charts look as they do presently. But the more important point is to update you on waning negative reprice risk. If the last update was to make note that the bleeding had stopped, this one is to suggest it's almost time for the patient to go home.
1:41PM  :  ALERT ISSUED: Bleeding Looking More And More Like It's Stopping
Too soon to call the game and lenders who have yet to reprice for the worse are still at risk of doing so, but we're seeing a few more technical cues suggesting 1.67% and change is as high as 10's wanted to go in today's session. After hitting 1.6712, a big trade hit Treasury futures slightly before 12:30 which prompted the biggest minute of volume of the week at 12:27pm, assumed to be mostly sellers covering shorts from the sub 1.5% trading last Friday and early Monday.

Volume is big overall and the bounce back lower in yield is anything but decisive. 10's have sort of been grinding between 1.64+ and 1.67 for the past hour and change, but the trend over that time has been slightly lower in yield.

MBS keep on truckin' in their more equanimous posture with Fannie 3.5's still never dipping below 104-16 and up now to 104-21, a scant (compared to Treasuries) 6 ticks lower on the day.

Not much left for today as the big trades around 12:30 seem to have drawn a line in the sand ahead of what's increasingly perceived to be an "FOMC-Announcement Teaser" in the form of Bernanke's Congressional Testimony tomorrow morning. It's not safe to assume that we're immune from leaking to weaker levels in later day illiquidity, but it does look like the volume is in for the day and when all is said and done, we'll be able to look back at today as the first major encounter with high 1.6's in 10yr yields acting as a CEILING as opposed to a floor. Whether or not the ceiling holds, there's no way to know, but if we keep our cool for another hour and 20 minutes, it will at least have held for today.
12:18PM  :  ALERT ISSUED: Another Technical Break For US and EU Bond Yields
Bond Markets continue ratcheting to weaker levels with the 10yr already through it's 1.65 pivot and getting very close to testing the previous all-time low at 1.674. After breaking 1.30 earlier, German Bunds have had a pretty straight run up to 1.35, a clearly-delineated pivot for them.

Despite outperforming into the sell-off, MBS are down enough for additional negative reprice risk. Fannie 3.5's are down 10 ticks on the day at 104-17 and 3.0's down 15 ticks at 101-32+
11:11AM  :  ALERT ISSUED: Treasuries Test Weakest Levels Following Fed Buying.
10yr yields hit their highs of the day following the 10:15-11:00 scheduled Fed Twist buying in 2036-2041 maturities. 10's are currently sideways around the 1.62 mark and haven't yet bounced back lower as is more often the case. MBS had been hangin' tough without giving up much ground, and though they remain in better day-over-day territory than Treasuries, are starting to show some signs of weakness. Fannie 3.5's are down 3 ticks on the day at 104-24 but had been trading at 104-26 before the Fed buying details were released. If we don't bounce back to stronger levels very soon, it's a fairly negative turn of events as far as it's implication on momentum.
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.

Ted Rood  :  "If market absorbed huge lock volume last three days and only lost minimal ground, speaks well for continued rates in this range!"
Adam Quinones  :  "seems like the storm has passed now. pretty quiet today..."
Andrew Horowitz  :  "whole lot of hedging going around"
Adam Quinones  :  "interesting...seems like the entire mkt locked their pipelines over the past two days."
Victor Burek  :  "REPRICE: 1:34 PM - Nexbank Worse"
Michael Tadros  :  "REPRICE: 1:30 PM - Everbank Worse"
Jeff Anderson  :  "Hodgey, or lender credit could cover it, but it is all or none."
Matt Hodges  :  "with FHA, UFMIP must be all financed or all paid in cash. What about VA FF?"
Bill Laffey  :  "REPRICE: 1:14 PM - Cole Taylor Worse"
Jason Adams  :  "REPRICE: 12:54 PM - Flagstar Worse"
Michael Tadros  :  "REPRICE: 12:51 PM - Provident Funding Worse"
LSP  :  "REPRICE: 12:50 PM - Fifth Third Mortgage Worse"
LSP  :  "REPRICE: 12:47 PM - Chase Worse"
Gaius Rossini  :  "i'm probably leaning a bit towards a small disappointment as well."
Andrew Horowitz  :  "Again I think it stays close to the vest, remember there is a very important vote coming up, I think as the ECB did nothing earlier today, you won't hear much from the Fed either, why announce prior to a potentially major market moving event"
Gaius Rossini  :  "what he says will determine what the market thinks they'll announce in the june meeting"
Brent Borcherding  :  "It is always important, but do you think they'll provide any new info?"
Gaius Rossini  :  "the market will read a lot into it"
Gaius Rossini  :  "should be pretty important actually"
Brent Borcherding  :  "AH, what do you think we hear from the Fed tomorrow...nothin' new?"
Adam Dahill  :  "REPRICE: 12:38 PM - Wells Fargo Worse"
Roger Moore  :  "REPRICE: 12:34 PM - Suntrust Worse"
Brent Borcherding  :  "I believe they'll be disappointed tomorrow, I don't think rhetoric will change much, outside of some acknowledgement of Europe."
Michael Tadros  :  "REPRICE: 12:31 PM - FPF Wholesale Worse"
Brett Boyke  :  "CNBC - “The market’s rallying on anticipation there’s going to be some kind of QE3 or operation twist,” said Alan Valdes, director of floor operations at DME Securities, noting that volume is still on the lighter side. “Traders continue to be very leery right now and will continue to be until we see jobs growth and a housing turnaround…People think the Fed has unlimited fire power—they don’t!”"
Michael Tadros  :  "REPRICE: 12:14 PM - Provident Funding Worse"
Victor Burek  :  "this is just a healthy pull back after a massive rally"
Steve Chizmadia  :  "We were just due for a pullback is all"
Steve Chizmadia  :  "Agreed VB"
Victor Burek  :  "reading here it seems a lot of peeps are thinking low rates are gone forever...our best rates are ahead of us"
Aaron Buyside Meyer  :  "10 yr broke 1.65"
Michael Tadros  :  "REPRICE: 11:48 AM - Interbank Worse"
Oliver S. Orlicki  :  "10 is selling off"
Oliver S. Orlicki  :  "snow ball!!"
Daniel Kramer  :  "LOCK EM UP"

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