MBS RECAP: Consumer Confidence And Euro Headlines Help

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
Bond markets started out the session heading into weaker territory after a tepid, but moderately positive overnight session for European risk markets.  Even at their worst, US bond markets still managed to find technical pivot points in line with some recurring levels from yesterday's session.  For Fannie 3.0 MBS, that was 102-26 and for 10yr yields, something just over 1.94%.  The weaker-than-expected Consumer Confidence data marked the turning point for bond market weakness and was helped along by comments from a member of EU Parliament reiterating the notion that Cyprus SHOULD, in fact, be seen as a template for future "bail-in" efforts  and that savers shouldn't assume that keeping over €100k in an EU bank is a guarantee they'll get it back.  This actually made for the biggest shock of the day to EU markets, but it proved to be a knee-jerk that gave way to a simple, modest drift lower for EU risk and US Treasury yields.  MBS climbed to their highs of the day just before 1pm and leveled off for several hours before getting choppy into the close.
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
102-27 : -0-02
FNMA 3.5
105-12 : -0-02
FNMA 4.0
106-16 : -0-02
FNMA 4.5
107-21 : +0-01
GNMA 3.0
104-09 : -0-02
GNMA 3.5
107-11 : -0-03
GNMA 4.0
108-28 : -0-02
GNMA 4.5
109-07 : +0-06
FHLMC 3.0
102-13 : -0-02
FHLMC 3.5
105-01 : -0-03
FHLMC 4.0
106-05 : -0-03
FHLMC 4.5
106-28 : +0-02
Pricing as of 4:04 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.

4:01PM  :  Late Day Illiquidity Causing Volatility. MBS Slightly Weaker
This is far from a clear-cut negative reprice scenario as there really isn't much by way of actual trading happening in MBS this afternoon. Quote activity is choppy and sparse at best, but what has made it through is a bit weaker. Fannie 3.0s are down 2 ticks on the day at the moment at 102-27. This is essentially in line with, or better than the print time for most of the day's rate sheets, suggesting limited negative reprice risk. That said, for those planning on locking today, these moves most likely close the door for additional positive reprices between now and cut-off.
2:39PM  :  Back To More Neutral Stance Into Afternoon
European markets--particularly German Bunds--led a decisive bounce heading into 5pm GMT (1pm Eastern). This resulted in another bounce around the 1.90 level for US 10's and 103-00 in Fannie 3.0 MBS. We'd note that, while "decisive," the decision in question was fairly small, and only resulted in a few ticks of movement among any markets paying attention.

Fannie 3.0s pulled back and leveled off around unchanged levels (102-29 currently) and 10yr yields are 1bp improved on the day at 1.9094. While we did see a few positive reprices earlier this afternoon (and while the possibility lingers) they're slightly less likely at current levels, which are very much in line with yesterday afternoon's range.

Already small volumes have gotten smaller and there's been little by way of digestible news with Europe done for the day. Equities markets are taking another run at 1560 in S&P's (currently 1560.71 after hitting intraday highs at 1562), but the stock lever hasn't been connected enough for this to be adversely impacting bond markets. In fact, both sides of the market have been improving since 1:20pm.
12:30PM  :  ALERT ISSUED: Edging Into Positive Reprice Territory
After the gradual drift higher that began at 10am, bond markets have recently found some incremental benefit from a few European headlines. The first of these was that ALL banks on the island of Cyprus will be subject to capital restrictions. Across the Mediterranean, a Berlusconi official reiterated what was already known, that Italy would head back to elections if the a new government isn't formed.

While the latter had less of an impact than the former, it has nonetheless benefited from timing. In other words, by causing a bit of extra bullishness at what were already the day's best levels, it had a bit of snowball effect for tradeflows. Add to that the ongoing resistance seen in equities markets (S&P's hitting same ceiling around 1560 againd and again and again) and the situation has shifted from tepidly positive to something slightly better.

Based on the distance from opening levels, positive reprices are a possibility (Provident already repriced, but that was nearly an hour ago and unrelated to the recent positive shift). Fannie 3.0's are up 3 ticks now at 102-31 and 10yr yields are down 1.5bps on the day at 1.9042.
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.

Jeff Anderson  :  "REPRICE: 1:55 PM - Chase Better"
Matthew Graham  :  "RTRS - IMF SAYS PRELIMINARY STRESS TESTS SUGGEST CAPITAL BUFFERS BUILT BY ITALIAN BANKS WOULD OFFSET MOST LOSSES GENERATED BY AN ADVERSE MACROECONOMIC SCENARIO "
Matthew Graham  :  "REPRICE: 12:46 PM - Plaza Better"
Bryce Schetselaar  :  "REPRICE: 12:42 PM - Franklin American Better"
Bryce Schetselaar  :  "REPRICE: 12:39 PM - Sun West Mortgage Better"
Christopher Stevens  :  ""Thursday’s meeting between Mssrs Bersani and Napolitano is key, although it may end up kicking the can down the road until after the Easter break. The president may give Mr. Bersani a chance to risk a Senate vote based on hoping to poach some undeclared support from outside of his coalition, or he may insist on a formal bipartisan agreement. The other key event is the election — by the parliament — of a successor to Mr. Napolitano. Given the likelihood that the new legislature won’t last five y"
Chris Kopec  :  "Can't imagine how the Cyprus situation is helping the Monti/technocrat faction."
Matthew Graham  :  "RTRS - ITALY CENTRE-RIGHT OFFICIAL SAYS STILL WIDE DIFFERENCES WITH CENTRE-LEFT, IF NOT RESOLVED WILL HAVE TO BACK TO ELECTIONS "
Jeff Anderson  :  "So who can we line up to run their mouth in Europe tomorrow? Can we get a set schedule set up?"
Matthew Graham  :  "RTRS - CYPRUS FINANCE MINISTER SARRIS SAYS CYPRUS EXIT FROM EURO ZONE "NOT TO BE CONTEMPLATED", DISASTROUS FOR ISLAND "
Christopher Stevens  :  "Of course back in December the IMF dropped their opposition to capital controls. Great foresight by them huh."
Chris Kopec  :  ""No cash for you!!!""
Chris Kopec  :  "Yeah, wtf is a "loose capital control"?....are they going to have a Soup Nazi stationed at every teller window deciding if the withdrawal request should be granted?"
Matthew Graham  :  "RTRS - CYPRUS CENTRAL BANK GOVERNOR EXPECTS CAPITAL CONTROLS TO BE "LOOSE", APPLY THROUGHOUT BANKS ON ISLAND "
Rob Clark  :  "REPRICE: 11:48 AM - Provident Funding Better"
Victor Burek  :  "i would disagree brett. be much more comfortable then leaving the money in a bank"
Brett Boyke  :  "doesn't sound comfortable VB"
Victor Burek  :  "read an article the other day..some mattress company is making mattresses now with built in safes"

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