MBS RECAP: FOMC Minutes Drop Afternoon Tape Bomb On Rates
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
It's ironic that this morning's "day ahead," pondered the possibility that economic data would creep back into the picture today with ADP Employment in the morning ahead of NFP tomorrow. In fact, the FOMC minutes were scarcely mentioned, let alone considered as the single biggest market mover for MBS Prices since April 3rd! 10yr yields soared for a 3rd straight session, capping a 20bp+ move since Monday. The reason the FOMC Minutes took such a big chunk out of bond markets is that it suggested somewhat of a shift away from strong level of consensus among FOMC members regarding the terms and timing of QE4 withdrawal. In other words, between December 12th and today, we've gone from explicit "low rates through mid 2015" to policy thresholds tied to unemployment and inflation, as well a Fed that is at least considering the possibility of QE4 ending before 2013 does. While markets never assumed that the low rate guidance from the FOMC Statement meant that the Fed would be conducting QE that whole time, markets had perceived more unity among Fed governors regarding the commitment to QE. Bottom line, MBS and Treasuries just got a call from their benefactor and were told "hey sport... yeah... I might be done sending checks a bit sooner than you might have thought..."
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.
2:12PM :
ALERT ISSUED:
Full-On Liquidation Mode. Reprices All But Guaranteed
Negative reprices currently aren't a matter of "if," but "when," and that will likely be very soon if you haven't seen them already. The blindside here comes from the just-released FOMC Minutes which show a much-greater-than-assumed difference of opinion as to long term asset purchases.
Fannie 3.0s are down over 3/8ths of a point at 104-10, and sort of a moving target at the moment. 10yr yields ran up over 1.9 and S&P's sold off 6 points instantaneously.
Fannie 3.0s are down over 3/8ths of a point at 104-10, and sort of a moving target at the moment. 10yr yields ran up over 1.9 and S&P's sold off 6 points instantaneously.
2:03PM :
ALERT ISSUED:
Negative Reprices More Likely as MBS Slide Following FOMC
Fannie 3.0s just hit the lows of the day at 104-16. We could get a knee-jerk bounce fairly soon, but for now, reprice risk is majorly elevated after the FOMC Minutes release. More details to follow...
1:08PM :
Uncomfortably Trudging Along Lows. Reprice Risk Looming
Although current price action isn't necessarily indicative of negative reprice risk, the trend has not been our friend so far this morning. Fannie 3.0s are off 104-23+ highs and have been trudging sideways at 104-18 to 104-19 since roughly 11am. 10yr yields are pushing their highs at 1.8635 (highest levels since mid-September).
It's entirely possible that we're simply witnessing some sort of slow-motion bounce at the outermost limits of the long term range. 1.864 seems like an informative short term pivot in assessing whether or not a "bounce" will ultimately be the case, with a break back below 1.857 helping to reinforce the bounce. More simply put: holding under 1.864=good. Breaking below 1.857 = better, and time spent over 1.864=not good.
With all that in mind (and not trying to jinx it), it looks like the bounce may be taking shape as this is typed. 10's are currently at 1.8583 and Fannie 3.0s are up to 104-20 after several solid bounces at 104-18.
We did get one negative reprice reported, but apart from that, still aren't seeing much by way of justification for additional reprices. That said, there's plenty of reason to stay on guard! With the underfoot support so firmly established at 104-18, a break below would seem to suggest that negative reprices would quickly become more likely.
It's entirely possible that we're simply witnessing some sort of slow-motion bounce at the outermost limits of the long term range. 1.864 seems like an informative short term pivot in assessing whether or not a "bounce" will ultimately be the case, with a break back below 1.857 helping to reinforce the bounce. More simply put: holding under 1.864=good. Breaking below 1.857 = better, and time spent over 1.864=not good.
With all that in mind (and not trying to jinx it), it looks like the bounce may be taking shape as this is typed. 10's are currently at 1.8583 and Fannie 3.0s are up to 104-20 after several solid bounces at 104-18.
We did get one negative reprice reported, but apart from that, still aren't seeing much by way of justification for additional reprices. That said, there's plenty of reason to stay on guard! With the underfoot support so firmly established at 104-18, a break below would seem to suggest that negative reprices would quickly become more likely.
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.
Eric Franson : "REPRICE: 3:41 PM - Wells Fargo Worse"
Nate Miller : "REPRICE: 3:35 PM - GMAC Worse"
Roland Wilcox : "REPRICE: 3:34 PM - USBank Worse"
JRS : "REPRICE: 3:32 PM - Flagstar Worse"
Ira Selwin : "REPRICE: 3:28 PM - PHH Worse"
rford : "REPRICE: 3:23 PM - Stearns Lending Worse"
Steve Chizmadia : "REPRICE: 3:19 PM - Icon Wholesale Worse"
MMNJ : "REPRICE: 3:17 PM - Citi Worse"
Matt Hodges : "REPRICE: 3:01 PM - Suntrust Worse"
Steve Chizmadia : "REPRICE: 2:59 PM - Pinnacle Worse"
Ira Selwin : "REPRICE: 2:53 PM - Chase Worse"
Ira Selwin : "Yep"
Adam Quinones : "FAMC worse again?"
Ira Selwin : "REPRICE: 2:51 PM - Franklin American Worse"
MC : "REPRICE: 2:49 PM - Flagstar Worse"
Ira Selwin : "REPRICE: 2:47 PM - BB&T Worse"
Mark Matta : "PacificBanc Mortgage Reprice "
Matthew Graham : "REPRICE: 2:42 PM - Wells Fargo Worse"
Adam Quinones : "Wells now."
JRS : "REPRICE: 2:41 PM - Stonegate Mortgage Worse"
Tom Cosentino : "REPRICE: 2:39 PM - Franklin American Worse"
Steve Chizmadia : "REPRICE: 2:37 PM - Icon Wholesale Worse"
Justin Dudek : "REPRICE: 2:34 PM - Everett Financial Worse"
Nate Miller : "REPRICE: 2:34 PM - Caliber Funding Worse"
Eric Leithliter : "Stearns lock desk closed"
Steve Chizmadia : "REPRICE: 2:32 PM - Sun West Mortgage Worse"
Bromi Krock : "yes it is. I don't think everyone is sold or going to sell on this. agree on the 1,2,3 punch MG. if tomorrow surprises for the better it could get real ugly."
Matthew Graham : "Hopefully NFP tomorrow doesn't make for a 1-2-3 punch"
Clayton Sandy : "REPRICE: 2:11 PM - Provident Funding Worse"
Scott Rieke : ""What do you mean the Fed's not going to buy things forever?!""
Jason Wilborn : "the more unsureness in the Fed you see the more volatile the markets will be"
Jason Wilborn : "those are VERY interesting comments below mG"
Jason Wilborn : "hmmm - the first divided fed I have seen in a LONG time"
Matthew Graham : "RTRS- FED OFFICIALS THOUGHT RECENT STEPS IN EUROPE HAD REDUCED VOLATILITY IN SOVEREIGN DEBT MARKETS, BUT CONCERNS REMAIN ABOUT EUROPEAN OUTLOOK - MINUTES"
Matthew Graham : "RTRS- A FEW FOMC MEMBERS THOUGHT ASSET PURCHASES WOULD LIKELY BE WARRANTED UNTIL ABOUT THE END OF 2013 - FED MINUTES "
Matthew Graham : "RTRS - SOME FOMC MEMBERS EMPHASIZED NEED FOR "CONSIDERABLE" POLICY ACCOMMODATION BUT DID NOT SPECIFY TIME FRAME OR TOTAL SIZE -- FED MINUTES "
Matthew Graham : "RTRS- SEVERAL FOMC MEMBERS THOUGHT WOULD PROBABLY BE APPROPRIATE TO SLOW OR STOP ASSET BUYS "WELL BEFORE" END OF 2013, CITING CONCERNS ABOUT FINANCIAL STABILITY, BALANCE SHEET SIZE - FED MINUTES "
Oliver S. Orlicki : "Jason, not the case anymore. You can remove a borrower from a HARP loan. Just closed 3 of them."
Bryan LaFlamme : "REPRICE: 12:11 PM - 360 Mortgage Worse"
Jason Anker : "HARP - removing a borrower still requires a 12 month payment history to show no funds contributed by the spuse you are removing? My March 2012 update says that is the case. can anyone confirm?"
Matthew Graham : "lock/float decisions for anything beyond the end of the day are inherently more risky than simply watching the chart for a certain amount of change in price. For some lenders it's 4 ticks (.125), others 8 (.25), and can always depend on ancillary factors such as momentum, stability, volatility, and liquidity."
Matthew Graham : "correct"
Tim Mitchell : "So the advice on the knowledge base, use primarily for inter-day alerts vs. long term float / lock strategy sounds right on the money"
Matthew Graham : "In a perfect world, in a perfect vacuum of factors affecting rates, yes, a point should be a point. But as the recent white paper and workshop from the NY Fed point out, there is no such vacuum, and assigning weightings to the underlying reasons for this remains a bit of a challenge: http://libertystreeteconomics.newyorkfed.org/2012/12/why-isnt-the-thirty-year-fixed-rate-mortgage-at-26-percent-.html"
Matthew Graham : "specifically regarding your question, if you're looking at Ginnies, 3.0s were up in the high 106-20's at the end of Nov (keep in mind, you're looking at at bps, best I can tell, so 104-26 = 104.8125. Sprinkle in some holiday-inspired conservative pricing strategies (depending on lender) and any other lender-specific pricing considerations (year-end balance sheets, capacity, hedging cost changes), and you could easily account for the changes you're seeing. "
Matthew Graham : "http://mbslive.mortgagenewsdaily.com/knowledgebase/articles/130847-what-resources-are-available-for-understanding-the is a start"
Tim Mitchell : "I'd like to be more educated on how these charts effect "actual" pricing, is there an article or a reference that I could read up on?"
Derek Nadvornick : "VA = GNMA"
Tim Mitchell : "Question - Dislosed a High Balance VAIRRRL on 11/28 - 30 YR FNMA 3.0 traded between 104-98 and 105-33 that day. Pricing is off by a little over 100 bps, is that a "normal" shift or potentially exaggerated by Freedom taking a new stance on that product? in other words, does a 100 points on the 3.0 usually equal around 100 bps to price?"
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