MBS RECAP: Building On Yesterday's Gains, Coming To Crossroads

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
Although bond markets leaked casually into weaker territory overnight and despite the hiccups caused by the curiously strong (but later explained) Jobless Claims numbers, MBS managed to hold their ground this morning without giving up the price ledge at 105-00 in Fannie 3.0s achieved with yesterday afternoon's auction-related positivity.  As MBS put the Fannie/Freddie 30yr settlement in the rearview, volume picked up nicely and a solid technical picture is beginning to develop.  After today's 30yr auction, we saw an interesting technical development.  Once 105-00 was defended yet again, prices shot more or less straight up to 105-11, which is a hugely important pivot point and can be seen in the following chart.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
105-09 : +0-03
FNMA 3.5
106-21 : +0-03
FNMA 4.0
107-10 : +0-02
FNMA 4.5
108-02 : +0-01
GNMA 3.0
106-30 : +0-05
GNMA 3.5
108-31 : +0-03
GNMA 4.0
109-14 : +0-02
GNMA 4.5
109-09 : +0-00
FHLMC 3.0
105-05 : +0-01
FHLMC 3.5
106-16 : +0-02
FHLMC 4.0
106-30 : +0-01
FHLMC 4.5
107-09 : -0-03
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.

1:19PM  :  ALERT ISSUED: MBS Fall Moderately But Quickly Following 30yr Auction. Now Bouncing Quickly Too!
In and of itself, the 30yr Bond Auction was below average, coming in with both weaker demand and a higher-than-expected stopping yield. That accounts for the "quickness" of the sell-off that we're now seeing in response, but the magnitude of the selling has merely been moderate thus far.

Chalk that up to the fact that the auction wasn't quite so bad when viewed in the context of a decent afternoon of trading for bond markets yesterday as well as a strong hour or so leading up to today's auction, the mildly negative stats are forgivable.

It looks like markets are doing a fair enough job of forgiving as MBS have held previous pivot-based support and Treasuries have returned merely to the middle of today's trading range, and may already be showing signs of support.

In fact, as this alert was being written, we've seen a quick move off the higher yields in Treasuries and MBS have returned to their highs of the day. Risks are tilted toward positive reprice potential despite the initial post-auction volatility.
12:09PM  :  ALERT ISSUED: 30yr Auction Preview; MBS At Session Highs
Treasury Auction Jargon Primer

As is the case with 10's, 30yr auctions also tend to perform better in "Reopenings" vs "Refundings." For longer term Treasuries, there are 3 auctions that fill the same coupon. The current 30yr coupon was created by the 8/9/12 auction--a "refunding." There has been one "reopening" of that coupon with the 9/13/12 auction and today's auction is the 2nd and final reopening.

The average bid-to-cover for reopenings has been upwards of 2.6, with September's coming in at 2.68. The last refunding, by comparison, was only 2.41, dragging the overall recent average down to 2.55.

More important than the bid-to-cover ratio is where the auction "stops" in terms of the awarded yield vs the market's running expectations of that yield as measured by "when-issued" trading.

Historically, there's a better than 50% chance that a reopening stops through at a lower-than-expected yield (which is a good thing for bond markets), but we would note that we haven't seen BOTH reopenings 'stop-through' in a year and only 3 times in the past 3 years.

If today's 30yr auction is anywhere near as strong as yesterday's 10yr auction, Treasuries would likely have what they need to break into the green on the day, which could suggest a break of yesterday's highs for production MBS if they don't get there on their own, before 1pm! Fannie 3.0s have been rallying off a supportive bounce at 10:15am and are currently at session highs.

Much like yesterday, a lender or two might see this as grounds for positive reprices, but like yesterday, the majority would wait for more pronounced movement in one direction or another after the auction.
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.

MC  :  "REPRICE: 3:50 PM - Flagstar Better"
Jeff Anderson  :  "REPRICE: 3:47 PM - Chase Better"
Eric Franson  :  "REPRICE: 3:37 PM - Wells Fargo Better"
Steve Chizmadia  :  "REPRICE: 3:14 PM - Pinnacle Better"
Scott Valins  :  "Provident's 0.625pt G-FEE is showing up today on 30 day locks since expiration would be after 11/9"
Curt Sandfort  :  "If the payoff amount actually received by Bank of America to pay off your loan is insufficient to pay the amount due as described in this statement, we may treat your payment as an instruction to deduct the shortage from any refund you would receive of monies from your escrow account. We will not do this, however, if (i) the shortage is greater than $2,000.00, or (ii) you have instructed us not to do so. You may contact our Customer Service Department for this purpose at 1-800-669-5833."
Rob Clark  :  "That is there second"
Rob Clark  :  "REPRICE: 2:03 PM - Provident Funding Better"
Curt Sandfort  :  "I've had them do it before also Ken, don't know why they are claiming ignorance on the whole FHA lame/not factual excuse."
Ken Crute  :  "curt, I had a recent one, BOFA gave me the payoff, and then provide a seperate statement with the escrow balance stating this could be applied to their payoff "
BVG  :  "REPRICE: 1:57 PM - Interbank Better"
Curt Sandfort  :  "bottom line, Respa has nothing to do with netting escrows that I know about. They cited the fact that this was an FHA loan as the cause....does that mean anything to the experts here?"
Aaron Denton  :  "But BOFA has been doing it for years - Not sure how now all the sudden its a violation "
Jason York  :  "Wells does it all the time, but only if it is Wells to Wells"
Aaron Denton  :  "Chase also adopted same policy "
Aaron Denton  :  "Curt - He just ran up against the same thing this week with them "
Curt Sandfort  :  "BOFA is telling escrow that it is a respa violation for them to "net the escrows" against the payoff"
Matt Hodges  :  "in cost, not rate"
Matt Hodges  :  "from that RP, we lost .125% today"
Matthew Graham  :  " Tom Schwab : REPRICE: 2:17 PM (10/10/12) - USBank Better "
adam elway  :  "yesterday *"
adam elway  :  "Can anyone please confirm US Bank had a midday pricing improvement ?"

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