MBS RECAP: Another Stunningly Casual Visit To All Time Highs

MBS Pricing Snapshot

Volume has bee impressively thin today and markets look exhausted by the same old lackluster data, lackluster European financial system, and eternally "ready-to-act-as-needed" FOMC. After two days of testimony and two blown opportunities for Congress to ask Bernanke meaningful questions, we have nothing new apart from yesterday's enumeration by Ben of a few of the potential arrows in the Fed's quiver--none of them "new ideas" or previously immune from conjecture.

So the low, sideways grind--utterly lacking in conviction--continues to, well... grind sideways and low. ♫Grind Low, Sweet Bond Market♫ anyone?

Naturally, in this environment, it would be far too exciting for 10yr yields to break their previous lows, so we sit in the mid 1.47's. MBS, on the other hand are always a fan of sideways, narrow ranges in broader bond markets and, being one of the most logical places for investors to seek yield in the currently repressive interest rate environment, are up to their best levels of the week, essentially matching their all time highs around 103-23/103-24 in Fannie 3.0s.

Ratesheets are also mostly at all-time lows today. Given the price action, we'd normally expect a positive reprice or two, but reprices in either direction seem harder to come by of late as rate sheet pricing increasingly detaches from MBS movement in order to consider capacity constraints and early prepayments. Boring.... But at least it's "good boring."

Reports from most of the twelve Federal Reserve Districts indicated that overall economic activity continued to expand at a modest to moderate pace in June and early July. The Atlanta, St. Louis, and San Francisco Districts reported modest growth, while Boston, Chicago, Minneapolis, Kansas City, and Dallas described economic activity as advancing moderately. The New York, Philadelphia, and Cleveland Districts noted that activity continued to expand, but at a slower pace since the last report, while Richmond cited mixed activity.

All District housing market reports were largely positive as sales and construction levels increased and home inventories declined. Rental markets continued to strengthen with rising rents being reported in Boston, New York, Atlanta, Chicago, and Dallas. Commercial real estate leasing and construction continued to improve as demand for multifamily units increased in Atlanta, Chicago, and San Francisco. However, both New York and Richmond noted a slowdown in commercial activity, while Philadelphia and Dallas held steady.

Demand for loans, particularly those related to real estate, grew modestly in most Districts. However, both Cleveland and Richmond noted some weakness in loan activity. Credit standards remained unchanged in New York, Richmond, and Kansas City, while credit quality improved in Philadelphia, Kansas City, Dallas, and San Francisco. Agricultural production and pricing reports were mixed. While drought conditions have affected production in some Districts, others noted favorable conditions. Chicago and Kansas City reported a significant deterioration of corn crops, which has pushed up prices since the end of June.