MBS RECAP: Nearly Unchanged After Morning Rally Ebbs
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
Bond markets eked out a surprisingly moderate amount of positivity into 11am with the classic post-POMO reversal coinciding with Fiscal Cliff headlines to take things back toward opening levels by the end of the session. The scheduled "Permanent Open Market Operations" (aka "POMO") conducted by the Fed as a part of "Operation Twist" have been an almost daily focal point for bond markets for quite some time.
Even if they're not the biggest market mover on most days, they have served to suggest the time of day that rallies should be challenged (assuming that bond markets are rallying in the morning). Such was the case today as a "risk-off" response to a weak Spanish debt auction dovetailed nicely into a weak open for domestic stock exchanges. The lower employment component of the ISM services report bridged the pessimistic gap into the POMO, as it constituted a moderately negative anecdote for Friday's Nonfarm Payrolls.
Mere minutes before the end of the Fed's Treasury buying operation, news hit that "Republican Defectors" were ready to support a compromise on a Fiscal Cliff deal. Stocks bounced immediately while bond markets stayed at their strongest levels of the day through 11am only to hook up with the broader bounce back in a "risk-on" direction (higher stock prices, lower bond prices) moments later.
Lots of connectivity and correlation today, but what's the point, really? Prices are heading out the door in line with opening levels. The only difference is that there are more convenient explanations for the ebbs and flows in between the bells. Still no material change.
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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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.
2:50PM :
ALERT ISSUED:
MBS Hit Lowest Levels Since Open. Reprice Risk Uncertain
This isn't necessarily one of those magic 8-ball headlines, but the reprice outlook really is uncertain for two reasons. On the one hand, prices have fallen 5 ticks from their 11am highs. Any 5 tick movement from peak to trough is enough (just barely) to cause some concern that we're entering riskier waters re: negative reprices, especially if it takes us to the lowest levels since the first hour of trading and contributes to a downtrend into the last few hours of the day.
On the other hand, we're only 2-3 ticks off from most lenders' rate sheet generation time and there are no troubling technical breaks in broader bond markets. Volume is dying down, and we're near the end of the day.
Conclusion: we have to balance what we know about specific lenders against the considerations above. Lenders who have a tendency to "not necessarily adhere" to hard an fast rules about outright levels of movement are perhaps on the edge of considering a negative reprice. At current levels, we wouldn't expect that to apply to all but a few lenders and we'd need to hold here at these weaker levels or fall further in order to make negative reprices more than merely an outside possibility.
The farther we fall below 105-10, the more the risks increase.
On the other hand, we're only 2-3 ticks off from most lenders' rate sheet generation time and there are no troubling technical breaks in broader bond markets. Volume is dying down, and we're near the end of the day.
Conclusion: we have to balance what we know about specific lenders against the considerations above. Lenders who have a tendency to "not necessarily adhere" to hard an fast rules about outright levels of movement are perhaps on the edge of considering a negative reprice. At current levels, we wouldn't expect that to apply to all but a few lenders and we'd need to hold here at these weaker levels or fall further in order to make negative reprices more than merely an outside possibility.
The farther we fall below 105-10, the more the risks increase.
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.
BVG : "REPRICE: 3:27 PM - Interbank Worse"
Jeff Anderson : "Equities ticked up, but can't see any news yet. Just traders trading, so far."
Paul Carlin : "little down spike, any news to go with that? The 10s are holding"
Jason Anker : "thats right but mtg needed to be on time for 12 months prior to short - 12 month period preceding the short sale"
Jason York : "actually, FHA says no wait period if they weren't late at all"
Jason Anker : "if mtg was on time at the sale then it's 12 months with FHA"
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