MBS RECAP: What A Difference A Day Makes
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
Today was the day. It was the day when significant data returned to markets, when the technical framework gave off signs of a reversal, and when the recent "triangle" of consolidating, uncertain trading patterns in rates markets was finally broken in a big way. In absolute terms, this is the most we've moved since June 11th, but even then, 10bps in 10yr yields and 24 ticks in production MBS is one of the biggest moves of the year, with only 5 days offering bigger swings. Given the timing, the recent bouncing on the 1.86% ceiling, the technical cues, the upswing in volume, the no longer silent European headlines, and the impending conclusion to the month of August, it seems like this is the cue for markets to chalk up the recent weakness to all that "transitory stuff," that we'd hoped would take the blame, but feared would not. We now hope that it continues to look that way tomorrow, but are still defensive at this point.
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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Pricing as of 4:09 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.
2:30PM :
ALERT ISSUED:
Bigger Moves Now. New Highs For MBS On The Day.
By way of addendum to the initial coverage of the FOMC Minutes, which noted predominantly sideways and slightly positive price action, the action in the last 5 minutes has been definitively positive, lifting MBS to their highs. 10yr Yields also hit their lows of the session after some bigger volume buying hit the screens at 2:25pm. Positive reprices are increasingly likely at current levels.
2:17PM :
ALERT ISSUED:
FOMC Minutes Greasing Skids For QE3. First Move Is Positive
As is usually the case with big volume moves following anticipated data, it's too soon to tell whether or not bond markets will continue to rally in the wake of the just-released Minutes from the FOMC's last policy-setting meeting. Moreover, while volumes surged following the release, the price/yield action has been more of a two way street with MBS and Treasuries giving up a small amount of the immediate gains to fall back in line with the day's previous best levels.
That said, the tone of the Minutes was generally positive for market participants who are expecting a 3rd round of quantitative easing. In fact, it's almost as if they were greasing the proverbial skids for the September policy announcement to include some form of stimulus. Here's one snippet from the release that does a good job of laying out the FOMC's sentiment and at the same time, accounts for the "what if's" between now and then:
"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."
The key word here is SUBSTANTIAL. Most would agree that recent economic data has improved moderately in some cases, but even the bullish data doesn't connote a "substantial" improvement in the pace of the recovery. From there, we'd look next at "fairly soon," and likely take that to mean "this upcoming meeting or the next, but likely before the end of the year in any event."
So that's it, in a nutshell... In many ways, the same as it ever was.. If the economy doesn't improve more quickly than it has been, expect additional QE. Markets are obviously already fully onboard this ship as they haven't really moved much in the 15 minutes since the Minutes were released.
For now, MBS are a tick or two better than they were, but aren't trading above their previous highs. 10yr yields are almost exactly in line with the sideways levels that prevailed leading up to the Minutes, and stocks popped quickly to morning highs, but have bounced lower since then. Things could still go either way, but seem to be tilted slightly positively for bond markets at the moment. Positive reprices are a possibility.
Full Text:
That said, the tone of the Minutes was generally positive for market participants who are expecting a 3rd round of quantitative easing. In fact, it's almost as if they were greasing the proverbial skids for the September policy announcement to include some form of stimulus. Here's one snippet from the release that does a good job of laying out the FOMC's sentiment and at the same time, accounts for the "what if's" between now and then:
"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."
The key word here is SUBSTANTIAL. Most would agree that recent economic data has improved moderately in some cases, but even the bullish data doesn't connote a "substantial" improvement in the pace of the recovery. From there, we'd look next at "fairly soon," and likely take that to mean "this upcoming meeting or the next, but likely before the end of the year in any event."
So that's it, in a nutshell... In many ways, the same as it ever was.. If the economy doesn't improve more quickly than it has been, expect additional QE. Markets are obviously already fully onboard this ship as they haven't really moved much in the 15 minutes since the Minutes were released.
For now, MBS are a tick or two better than they were, but aren't trading above their previous highs. 10yr yields are almost exactly in line with the sideways levels that prevailed leading up to the Minutes, and stocks popped quickly to morning highs, but have bounced lower since then. Things could still go either way, but seem to be tilted slightly positively for bond markets at the moment. Positive reprices are a possibility.
Full Text:
1:41PM :
Steady At Best Levels Ahead Of FOMC Minutes
After popping initially higher into the Asian open, bond markets engaged in a more methodical, yet forceful push to lower yields into the domestic session. Methodical because 10yr benchmarks are clearly ratcheting up a predefined ladder of technical levels, and forceful because the technical movements have persisted with increases volumes versus yesterday and in spite of European headlines.
It's not that European headlines were necessarily positive or negative for bond markets, but simply that there hasn't been much reaction at all. Neither has there been any reaction to this morning's economic data or domestic headlines. In other words, there's just a forceful and determined push into better territory. It progressed of its own accord (without motivation from data or events) and now waits to see if the FOMC Minutes can offer any data-based motivation.
Until then, 1.7363 in 10yr yields is a line in the sand marking the lows of the day (last 5 days actually). If yields break lower below that around or after the FOMC Minutes, so too may Fannie 3.0 MBS crack their 102-25 ceiling on the day. Support is in the 102-19 to 102-20 area and we're currently just over that, 12 ticks improved on the day at 102-22.
It's not that European headlines were necessarily positive or negative for bond markets, but simply that there hasn't been much reaction at all. Neither has there been any reaction to this morning's economic data or domestic headlines. In other words, there's just a forceful and determined push into better territory. It progressed of its own accord (without motivation from data or events) and now waits to see if the FOMC Minutes can offer any data-based motivation.
Until then, 1.7363 in 10yr yields is a line in the sand marking the lows of the day (last 5 days actually). If yields break lower below that around or after the FOMC Minutes, so too may Fannie 3.0 MBS crack their 102-25 ceiling on the day. Support is in the 102-19 to 102-20 area and we're currently just over that, 12 ticks improved on the day at 102-22.
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 : "REPRICE: 3:46 PM - Kinecta Better"
MC : "REPRICE: 3:46 PM - Flagstar Better"
Bill Laffey : "REPRICE: 3:42 PM - Cole Taylor Better"
Victor Burek : "REPRICE: 3:40 PM - Nexbank Better"
Justin Dudek : "REPRICE: 3:37 PM - Everett Financial Better"
Rob Clark : "REPRICE: 3:35 PM - Provident Funding Better"
Jeff Anderson : "REPRICE: 3:24 PM - Chase Better"
michael konnikov : "REPRICE: 3:23 PM - NYCB Better"
Scott Valins : "REPRICE: 3:18 PM - Fifth Third Mortgage Better"
BVG : "REPRICE: 2:53 PM - Interbank Better"
Jason Adams : "REPRICE: 2:46 PM - Platinum Mortgage Better"
Rob Clark : "REPRICE: 2:16 PM - Provident Funding Better"
Matthew Graham : "RTRS - MANY FED OFFICIALS BELIEVED ANY NEW ASSET BUYING PROGRAM SHOULD BE FLEXIBLE, ALLOW ADJUSTMENTS IN RESPONSE TO ECONOMIC CHANGES "
Jon : "Keep it coming MG, it's a green party so far!!"
Matthew Graham : "RTRS - MANY FED OFFICIALS BELIEVED A NEW LARGE-SCALE ASSET PURCHASE PROGRAM COULD BOOST US RECOVERY BY LOWERING INTEREST RATES "
Matthew Graham : "RTRS- FED OFFICIALS DISCUSSED EXTENDING FORWARD INTEREST RATE GUIDANCE AS ONE OPTION IF MORE ACCOMMODATION REQUIRED -FOMC MINUTES "
Jason Wilborn : "board is lighting up"
Matthew Graham : "RTRS - A NUMBER OF FOMC MEMBERS SAID MODEST ECONOMIC GROWTH LEAVES US ECONOMY VULNERABLE TO SHOCKS, RECESSION RISK -FED "
Matthew Graham : "RTRS- FED POLICYMAKERS VIEWED U.S. ECONOMIC RISKS TILTED TO DOWNSIDE DUE TO EUROPE STRAINS, U.S. FISCAL CLIFF - FED MINUTES "
Matthew Graham : "RTRS - MANY FOMC MEMBERS SUPPORTED EXTENDING FED'S LATE-2014 INTEREST RATE GUIDANCE, BUT AGREED TO DEFER DECISION TO SEPT MEETING "
Matthew Graham : "RTRS - MANY FED OFFICIALS JUDGED FURTHER POLICY EASING LIKELY WARRANTED "FAIRLY SOON" BARRING SIGNIFICANT UPTURN - AUGUST FED MINUTES "
Matthew Graham : "interesting comments! here ya go:"
Matthew Graham : "heard about a think tank report out earlier today saying that Fed has "elevated" QE3 discussions"
Victor Burek : "oil at 96..not gonna happen"
Jason Wilborn : "what about Greece"
Jason Wilborn : "even with shrinking index numbers"
Justin Harward : "no qe3"
Victor Burek : "not gonna happen"
Jason Wilborn : "QE III anyoone"
Matthew Graham : "3 min, ostensibly"
Andy Pada : "when will the fomc minutes be released?"
Matthew Graham : "RTRS - SAMARAS SAYS GREECE WOULD BE "BROKE" IF IT DOESN'T GET THE TRANCHE AT ALL "
Jeff Anderson : "Those are I.O.U's. There as good as money."
Jerry T : ""I will gladly pay you Tuesday for a Gyro today""
Matthew Graham : "RTRS - GREEK PM SAMARAS IN NEWSPAPER GUARANTEES PERSONALLY THAT GERMANY WILL GET ITS AID BACK "
Thomas Nelson : "The 10 day conditions is my favorite....and that is calculated how?"
Mike Drews : "so their turn time have improved then!"
Mike Ford : "cmg 75days initial UW, 10days conditions, 24/48 docs/funding. no new submissions as of today until such future date they get caught up"
Andrew Russell : "CMG just exited HARP wholesale"
Matthew Graham : "this might not answer your question completely TN, but at least should provide some additional, visual background to the conversation. See this and then re-fire on remaining questions: http://www.mortgagenewsdaily.com/mortgage_rates/blog/271818.aspx"
Thomas Nelson : "MG, what does that mean for us minions?"
Matthew Graham : "CK, I'm increasingly interested in the possibility that there were some serious stops set at the levels hit during that volume pop. 132-22 in 10yr futures. I'm actually working on a chart right now for this very reason. "
Matthew Graham : "No, I don't think the Japan Trade data is the culprit here. more of a village."
Chris Kopec : "New subject.....are treasuries reacting mainly due to Japan Data?"
Matthew Graham : "3.0's have definitely bounced back into some levels of production after looking like they would be put out to pasture last week"
B-C : "Hey MG, how about that 3.0 coupon "
Amy : "It has been rough! I wouldn't say we're out of the woods yet, but I feel a lot better today than I have!"
Chris Lees : "I'm with you Amy... was a rough week psychologically..."
Chris Kopec : "I think a few other people floated some loans here and there, Amy."
Jamall Singh : "I'm with you Amy"
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