MBS RECAP: Paradoxical GDP Vetted By Internals, FOMC Innocuous, Asleep Till NFP

MBS Pricing Snapshot

While a few lenders have already repriced positively, most have stayed sidelined on what is STILL an extremely muted response to the FOMC Statement. As for the statement itself, it was more economically bullish in parts, removing the indecision as to whether or not economic growth would be able to spur job creation, instead opting to refer to moderate growth leading to gradual declines in unemployment.

This was and still is a potentially perilous distinction for bond markets, though solace is presently derived from the absence of "new, bad news." In other words, there were no changes to how the Fed will be approaching Treasury or MBS purchases. In fact, without reading too much into it, there weren't any material changes at all.

This leaves the near term focus on Friday's NFP as the week's major guidance-giver. The nearer term focus is the absence of auction supply, the presence of scheduled Fed buying, and Month-end balance sheets to account for tomorrow, not to mention the probability of more short-covering helping give the appearance of a positive reaction when not much of a positive reaction is justified.

Regardless of our distrust of the rally, it has held up better into the late afternoon, with MBS and Treasuries both moving back to pre-FOMC levels and bouncing fairly nicely toward the best levels of the day. This says nothing of tomorrow's activity. Things are still very much up in the air. Nothing was resolved here today--frustratingly--but less frustrating is the brief moment of reprieve with a greener color on the screens. Hopefully it doesn't turn out to be an "enjoy it while it lasts" scenario. Even though we don't have material evidence to suggest that is the case, neither could we disprove it beyond a reasonable doubt. Bottom line: don't get complacent here, or at least don't plan on major follow through without support from NFP on Friday morning.

As part of a broad effort to strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund (MMI Fund), FHA Commissioner Carol Galante announced a series of changes to be issued this week that will allow the agency to better manage risk and further strengthen the health of the MMI Fund.

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said Galante. “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

(Includes Changes to MIPs, HECM, Underwriting , Down Payments on Loans over $625k, and advertising regarding post-foreclosure qualification)

A surprisingly muted response so far to the FOMC Announcement, but a positive one so far. Fannie 3.0s are up 4 ticks on the day now and 10yr yields have fallen to 2.0046. We'd very much prefer to be moving through the 2% level into the 1.9's and for now, are viewing this as a net-negative bounce off pivot-based resistance. Stay Cautious!

5 minutes to go until the FOMC Announcement and we're already in line with the highest volume session of January. Prices have been relatively steady after shaking of the morning weakness at 11am. Fannie 3.0s have traded back and forth around 103-01 and 10yr yields have ground into a ceiling at 2.03 (2.028 currently).

There's never a guarantee that FOMC Announcements will be huge market movers in one direction or another, but there's always the POTENTIAL. There's a chance the statement won't be much changed from previous statements, but if there are notable differences, and if they speak to the timing/continuation of easing either positively or negatively, even the looming NFP on Friday won't prevent big, fast swings.

Lenders know this and will be quicker to reprice if we start tanking. If that's the case, we'll endeavor, as always to get the alert out as quickly as possible, but these are also good times to be paying attention to prices as well, watching for any sort of sustained break below 102-28 in 3.0s and/or above 2.04-ish in 10yr yields. If things happen to break the other way, enjoy the ride.