MBS RECAP: Bond Markets Pummeled, More To Come?
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
Today's jobs report made for the first significant swing to the weak side for MBS and Treasuries, but through the rest of the day, losses deepened, taking us almost perfectly back to the levels seen right before the last jobs report (1.752 today vs 1.757 on April 5th). That stands to reason, considering that today's report was not only strong for April's payroll creation, but also brought in a big revision higher for that March report (on April 5th) that caused a healthy rally lower in yield. It's exactly the same story for MBS... 104-01 at 8:29am on April 5th vs 104-01 right now. Risk-off, risk-on. Everything is nothing. Wiping the slate clean and starting anew. But is next week as simple as a fresh start? Is it really a "reset?" Historically, a move like today's that runs counter to more than a month of trending, has been more likely to mark the beginning of a move back to other side of whatever the recent range or broader trend might be. While past precedent is nice, and while this one probably does tilt the odds toward continued weakness next week, such precedent is faulty indicator frequently enough that it shouldn't be the only consideration. Those considerations vary by client and by originator, but it's worth considering how much closer we are to 2013 lows vs highs in terms of rate, and then again how much closer we are to generational lows than highs over the past year. Next week is frustratingly empty with the exception of Treasury auctions, and will give markets a chance to trade it out based on tradeflows and technicals rather than fundamental data. A move to the weak side borders on "too obvious" from a technical perspective, and therefor, should be questioned.
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.
2:20PM :
ALERT ISSUED:
Trending Weaker, MBS Hitting Fresh Lows, Reprice Risk Constant
Negative reprice risk has been and will continue to be a constant companion for the rest of the day. Whereas prices were close enough to 10am levels to logically argue for less reprice risk an hour ago, that's not the case to the same extent now.
Even lenders who were conservative with today's initial rate sheets are now facing a decidedly linear downtrend in prices. Same story with the uptrend in 10yr yields. Highly risky environment regardless of how far you are from initial rate sheet print time.
Fannie 3.0s down 21 ticks at 104-00 even, 10yr yields up 12.6 bps to 1.75. S&P's still flyin' at 1615. To reiterate the previous alert, there's no reason to assume that this trend will stop until we've actually witnessed it stopping.
Even lenders who were conservative with today's initial rate sheets are now facing a decidedly linear downtrend in prices. Same story with the uptrend in 10yr yields. Highly risky environment regardless of how far you are from initial rate sheet print time.
Fannie 3.0s down 21 ticks at 104-00 even, 10yr yields up 12.6 bps to 1.75. S&P's still flyin' at 1615. To reiterate the previous alert, there's no reason to assume that this trend will stop until we've actually witnessed it stopping.
12:38PM :
ALERT ISSUED:
10's Break Ceiling, MBS Close to Floor; Negative Reprice Risk Increasing
First off, the lenders who price earliest in the day REMAIN at risk of negative reprices, as discussed in a previous alert. This is due to the additional drop in prices seen heading into and out of the 10am hour. We would have hoped that those lenders priced sufficiently defensively to avoid the need for reprices, but at least one did not.
There's a bit more cause for defensiveness now... 10yr yields had been doing a very good job of holding the ceiling right at 1.733, but just gave up on that moments ago and are now up to 1.737. This is a significant technical break in terms of levels, but comes mid-day in light volume, so whether or not it materializes into a confirmed break, remains to be seen. Net negative though...
For MBS' part, they're right on the edge of their lows of the day with Fannie 3.0s at 104-02+ currently. They may break to the weak side if 10's confirm their break. Backing away from the microscopic detail, the bottom line is that we're sideways at the weakest levels of the day, and the weakest levels in 3+ weeks now for 10's (RIGHT on the upper limits of the super sideways mid-April range). Again, it's after 12pm on a Friday, so traders aren't making life and death decisions here, but it could make for a slippery afternoon, and one that retains a lingering reprice risk.
There's a bit more cause for defensiveness now... 10yr yields had been doing a very good job of holding the ceiling right at 1.733, but just gave up on that moments ago and are now up to 1.737. This is a significant technical break in terms of levels, but comes mid-day in light volume, so whether or not it materializes into a confirmed break, remains to be seen. Net negative though...
For MBS' part, they're right on the edge of their lows of the day with Fannie 3.0s at 104-02+ currently. They may break to the weak side if 10's confirm their break. Backing away from the microscopic detail, the bottom line is that we're sideways at the weakest levels of the day, and the weakest levels in 3+ weeks now for 10's (RIGHT on the upper limits of the super sideways mid-April range). Again, it's after 12pm on a Friday, so traders aren't making life and death decisions here, but it could make for a slippery afternoon, and one that retains a lingering reprice risk.
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.
Scott Valins : "REPRICE: 3:49 PM - Nationstar Worse"
Nate Miller : "REPRICE: 3:15 PM - Interbank Worse"
Ira Selwin : "REPRICE: 2:45 PM - Franklin American Worse"
Nate Miller : "REPRICE: 2:25 PM - Caliber Funding Worse"
Matthew Graham : "RTRS - FED'S LACKER SAYS WEAKER READING ON MARCH JOBS REPORT LOOKS LIKE AN OUTLIER "
Matthew Graham : "you'll love this then too DK:"
Matthew Graham : "RTRS- FED'S LACKER SAYS THERE IS A RISK FED BUYING OF MBS COULD OVER-STIMULATE US HOUSING MARKET "
Daniel Kramer : "i love how they want toshift polivy based on on good month"
Matthew Graham : "RTRS - LACKER SAYS FED SHOULD BE THINKING ABOUT HOW TO GET OUT OF THE MBS MARKET, SAYS SHIFT COULD BE OVER A COUPLE OF YEARS "
Matthew Graham : "RTRS - FED'S LACKER SAYS RECOVERY IN US HOUSING MARKET MEANS FED SHOULD SHIFT COMPOSITION OF ITS BALANCE SHEET AWAY FROM MBS "
Paul Sushereba : "REPRICE: 1:59 PM - Stonegate Mortgage Worse"
Andy Pada : "a whole lotta nothing from Mel Watt; almost amusing if we didn't depend so much on the Director's position."
Andy Pada : "http://blogs.wsj.com/developments/2013/05/02/qa-what-watt-would-do-as-fannie-maes-regulator/"
Matthew Carver : "REPRICE: 1:53 PM - Sierra Pacific Worse"
Eric Franson : "REPRICE: 1:26 PM - Wells Fargo Worse"
Nate Miller : "Mark.Angel@unionbank.com"
Nate Miller : "Mark G. Angel
Account Manager
Wholesale Lending Division
949-361-8615 Direct
949 278-8877 Cell
"
Bill Clark : "does any one have a contact for union bank whoelsale "
Tom Schwab : "REPRICE: 12:43 PM - Franklin American Worse"
Matthew Graham : "RTRS - LACKER: EUROPE A CHALLENGE FOR U.S. ECONOMY, DIFFICULT TO PROJECT MUCH GROWTH IN EUROPE WHILE PROBLEMS IN EURO AREA HEAL "
Matthew Graham : "RTRS- LACKER: U.S. FISCAL OUTLOOK "A MESS" AND UNSUSTAINABLE, SOME COMBINATION OF HIGHER TAXES, LESS SPENDING INEVITABLE "
Matthew Graham : "RTRS - LACKER SAYS TREND U.S. GROWTH CURRENTLY AROUND 2 PCT, SEES NO STRONG CASE TO EXPECT SUSTAINED CHANGE IN THAT PATH SOON "
Matthew Graham : "RTRS - LACKER: PROSPECTS FOR U.S. HOUSING MARKET AND BUSINESS INVESTMENT ARE STRONG, BUT EUROPE, REGULATIONS AND FISCAL POLICY A DRAG "
Ryan Kelly : "depends on the customer, if I qouted him this week and I'm probably not locking today. But if it's a customer from last week or later, I would still lock if we are with-in 15 to 30 days"
JCC : "REPRICE: 12:31 PM - Chase Worse"
Jeremy Bittner : "what are people thinking about locking or wait till next week?"
Mike Drews : "yes"
Christopher Stevens : "did Chase just reprice?"
Matthew Graham : "biggest day since April NFP for now, but will probably close bigger."
Mike Drews : "probably huge"
Joe Probst : "MG what the volume like today?"
John Tassios : "No worries everyone, This big selloff was needed to bring in new buyers next week and the week after, yields will slowly decline back down again / there are a lot of world goverments and large institutions buying bonds and MBS , including the FED"
Victor Burek : "and imo, avg work week will continue to decline"
Victor Burek : "we got jobs, but many service, retail and restaurant related..not very high paying jobs"
Victor Burek : "what has really changed?"
Christopher Stevens : "VB- you seem very confident that next week will be better. Why is that?"
Victor Burek : "we will slowly start getting that back next week"
Steve Chizmadia : "40-60 bp in fee seems to be the standard in the sheets I've looked at from yesterday to today "
Matthew Graham : "essentially, if every report was 119k, we'd be right where we are now"
Matthew Graham : "means half of all NFP reports are over that, half are under"
Brent Borcherding : "What does that mean?"
Matthew Graham : "linear regression of all NFP prints through 1950 is 119,842. "
Victor Burek : "that's why I said 125kish...nobody really knows"
Brent Borcherding : "Makes sense."
Victor Burek : "this article says only need from 80k to 120k, http://business.time.com/2013/03/21/with-baby-boomers-retiring-why-do-we-need-so-many-new-jobs/"
Victor Burek : "no Philip...from what I have read we need about 125k per month to keep up with population growth, minus retirees"
philip mancuso : "vb, you mean 225?"
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