MBS RECAP: A Lot Less Dramatic Than It Looked
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
To see the story told on MBS chart, it was an incredibly dramatic day that ended with a steep sell-off. Several negative reprices late in the day reinforced this apparent reality. In actual reality, however, MBS weren't really trading much at all by the time the uglier part of the sell off hit screens. While it's true that bond markets were moving into weaker territory, the majority of the MBS market was all packed up and out the door for the day. The small amount of trades actually coming in were heavily distorted by the illiquidity inherent in 48-hour day. Some of the losses in MBS were merely keeping pace with the real losses occurring in the Treasury complex. As for the Treasury losses, the day looks like an incredibly linear trend of selling that followed a failure to break below 1.78 in 10's after the 30yr Bond Auction. That modest uptrend just barely crested the day's previous highs by the 3pm close, and is very much in line with the week-long uptrend emanating from last week's NFP. Yesterday gave the impression that we could hope for that trend to level-off, but today's trading essentially squashes that hope.
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.
3:30PM :
ALERT ISSUED:
MBS Hit More New Lows, Negative Reprice Risk Lingers
Trading is largely "done" for the day in the MBS world with the last few ticks of downside acting as sort of a quick epilogue to the 3pm close. But even if prices remain here, some lenders may reprice negatively.
Fannie 3.0s are at their lows of the day both for May and June coupons, but may be able to make some sort of defensive stand here around 103-28. That would keep reprices from being a widespread phenomenon in the last hour and half, but we remain moderately at risk, just the same.
Fannie 3.0s are at their lows of the day both for May and June coupons, but may be able to make some sort of defensive stand here around 103-28. That would keep reprices from being a widespread phenomenon in the last hour and half, but we remain moderately at risk, just the same.
3:12PM :
Demarco's Remarks on Returning Private Capital to The Mortgage Market
"Today, I am going to focus on the fundamental choices that policymakers face in considering
housing finance reform. I hope we have learned from our past experiences with Fannie Mae and
Freddie Mac, and that we can develop a housing finance system that has appropriate oversight,
relies on private capital, and significantly reduces the systemic risk that was inherent in the old
model."
"Before turning to my subject, let me say a word about Fannie Mae and Freddie Mac today. From their just-released first quarter results, it is clear they are each beginning to show regular, strong profitability. This, of course, is a good thing. I want to acknowledge the hard work of the management teams and staff at both companies in this turnaround. At the same time, I want to acknowledge the importance of substantial and sustained government support. I also note that the companies are making substantial dividend payments to Treasury, but the structure of the Treasury support means the $187 billion drawn from Treasury is not reduced by these payments."
"Before turning to my subject, let me say a word about Fannie Mae and Freddie Mac today. From their just-released first quarter results, it is clear they are each beginning to show regular, strong profitability. This, of course, is a good thing. I want to acknowledge the hard work of the management teams and staff at both companies in this turnaround. At the same time, I want to acknowledge the importance of substantial and sustained government support. I also note that the companies are making substantial dividend payments to Treasury, but the structure of the Treasury support means the $187 billion drawn from Treasury is not reduced by these payments."
2:55PM :
ALERT ISSUED:
Treasuries Test Range Into Close; MBS Pressure; Reprice Risk
Even though the outright price gap from morning rate sheets remains relatively small, bond markets are trending in unfriendly directions fairly quickly into the 3pm Treasury close. 10's just broke out of their 2 day triangle and moved quickly higher to 1.8135.
MBS are off 4 ticks on the day now to 103-29--their weakest levels so far. Negative reprice risk is moderately increasing while we hold here, and could be more of a concern if the trend continues.
MBS are off 4 ticks on the day now to 103-29--their weakest levels so far. Negative reprice risk is moderately increasing while we hold here, and could be more of a concern if the trend continues.
1:10PM :
First Move is Positive For MBS Following 30yr Bond Auction
Compared to a 1pm when-issued yield of 2.989, the 30yr auction "stopped through" 9bps lower at 2.980. Bid-to-cover was slightly lighter than the historical average, coming in at 2.53 vs 2.66, but the rest of the auction stats were broadly in line with long-term averages.
10yr Treasuries (though not the subject of the auction) dropped an instant 1.5 bps from 1.796 to 1.781 and are currently boucning back up to 1.789.
Fannie 3.0s moved up a quick 3 ticks and have given back one so far. This post auction volatility can work itself out in either direction, but the auction itself was positive. Supply being over for the week is positive. And the price action since the auction has been positive. We'll let you know if that changes.
10yr Treasuries (though not the subject of the auction) dropped an instant 1.5 bps from 1.796 to 1.781 and are currently boucning back up to 1.789.
Fannie 3.0s moved up a quick 3 ticks and have given back one so far. This post auction volatility can work itself out in either direction, but the auction itself was positive. Supply being over for the week is positive. And the price action since the auction has been positive. We'll let you know if that changes.
1:00PM :
30yr Auction Preview
(Auction Jargon Primer, if you need it to decode the following)
Like yesterday's 10yr auction, today's is a "refunding," where a new coupon and security is created as opposed to the more frequent "reopenings" where Treasury "reopens" bidding 2 more times on the most recently created issue.
While the statistics for 10yr auctions vary quite a bit between the two varieties, 30yr auctions are a bit more comparable in terms of expected bid-to-cover. Refundings (today's version) actually perform slightly better, with the last 4 averaging 2.66 vs 2.55 for reopenings.
Refundings have had a greater tendency to "stop through" the 1pm when-issued yield (which is essentially the running forecast of the auction result). That when-issued yield is currently 2.989 at 1pm, and will be used as the baseline to measure how well the result comes in at 1:01:30.
Like yesterday's 10yr auction, today's is a "refunding," where a new coupon and security is created as opposed to the more frequent "reopenings" where Treasury "reopens" bidding 2 more times on the most recently created issue.
While the statistics for 10yr auctions vary quite a bit between the two varieties, 30yr auctions are a bit more comparable in terms of expected bid-to-cover. Refundings (today's version) actually perform slightly better, with the last 4 averaging 2.66 vs 2.55 for reopenings.
Refundings have had a greater tendency to "stop through" the 1pm when-issued yield (which is essentially the running forecast of the auction result). That when-issued yield is currently 2.989 at 1pm, and will be used as the baseline to measure how well the result comes in at 1:01:30.
12:12PM :
New Lows For The Day, But Reprice Risk is Questionable
Lenders who released their first rate sheets of the day at the very worst possible time are currently only looking at a 3 tick change between now and then. This isn't enough of a gap for any material reprice risk, though such things can never be fully ruled out for 1 or 2 of the "early crowd" lenders.
We're definitely seeing some hesitation in bond markets ahead of the 30yr Bond Auction and may have some "relief bid" to look forward to if 10's hold their overnight ceiling at 1.814. They're at 1.8032 currently. Fannie 3.0s are down 3 ticks on the day at 103-30 and there's no major divergences with June coupons that would further increase or decrease reprice potential.
Bottom line, we're at the lows of the day, and visually, the chart looks a bit ominous--the way it usually looks before negative reprices. But again, negative reprice risk is limited for now. We'd need to see another 2-3 ticks of weakness before it became a material risk. (Note: this doesn't mean a negative reprice is impossible, but it would be a lender-specific decision that didn't have to do with current decline in MBS prices).
We're definitely seeing some hesitation in bond markets ahead of the 30yr Bond Auction and may have some "relief bid" to look forward to if 10's hold their overnight ceiling at 1.814. They're at 1.8032 currently. Fannie 3.0s are down 3 ticks on the day at 103-30 and there's no major divergences with June coupons that would further increase or decrease reprice potential.
Bottom line, we're at the lows of the day, and visually, the chart looks a bit ominous--the way it usually looks before negative reprices. But again, negative reprice risk is limited for now. We'd need to see another 2-3 ticks of weakness before it became a material risk. (Note: this doesn't mean a negative reprice is impossible, but it would be a lender-specific decision that didn't have to do with current decline in MBS prices).
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.
Timothy Baron : "REPRICE: 3:59 PM - 360 Mortgage Worse"
Rob Clark : "REPRICE: 3:57 PM - Provident Funding Worse"
Clayton Sandy : "REPRICE: 3:56 PM - Chase Worse"
Nate Miller : "REPRICE: 3:56 PM - Interbank Worse"
Matthew Graham : "page 3 and 4 here AP http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2012/q42012_release.pdf"
Andy Pada : "Any breakdown on how much of Fannie's revenue was repurchases/reimbursement for loss/compensatory fees."
Victor Burek : "B+ from Rickster"
Matthew Graham : "A-"
Andrew Horowitz : "relief rally time"
Matthew Graham : "RTRS - US TREASURY - PRIMARY DEALERS TAKE $7.31 BLN OF 30-YEAR BONDS SALE, INDIRECT $6.21 BLN "
Matthew Graham : "RTRS- U.S. 30-year bond BID-TO-COVER RATIO 2.53, NON-COMP BIDS $12.26 MLN "
Matthew Graham : "RTRS- U.S. SELLS $16 BLN 30-YEAR BONDS AT HIGH YIELD 2.980 PCT, AWARDS 62.31 PCT OF BIDS AT HIGH "
Eric Franson : "REPRICE: 1:01 PM - Wells Fargo Worse"
Ted Rood : "sooner wouldn't hurt, but 5/31 is drop dead date."
Matt Hodges : "and, i'm betting your processor will have an early deadline, like noon, in case the FHA system is taxed that day"
Matt Hodges : "june 3, so effectively get a case number by May 31"
Chip Harris : "MIP changes not in effect until June though right?"
Ryan Kelly : "Probably a late night drunk Ebay auction bid they regret today..... LOL"
Ryan Kelly : "Ted that just means 3 people bought a house in Detroit."
Ted Rood : "Detroit's housing market soars 13%, median price all the way up to 84K!! http://www.marketwatch.com/story/10-hottest-us-housing-markets-of-2013-2013-05-09?siteid=nwham"
Matthew Graham : "just now getting to 3/32nds from the highest possible price during rate sheet time. Any reprice risk now isn't due to prices. "
Joe Daquino : "Maybe it means we will rally into the close........"
Ted Rood : "thought leakage was a PM issue, not midday!"
Ted Rood : "otherwise known as the "China, please buy our bonds" bill."
Matthew Graham : "RTRS- U.S. HOUSE OF REPRESENTATIVES PASSES BILL TO REQUIRE U.S. TREASURY TO PAY BONDHOLDERS FIRST IF BORROWING CAPACITY EXHAUSTED "
Joe Daquino : "The market is all relative to the money flowing into economy. Last time the Dow was hitting records was in 2006 / 2007 at a time when everyone was cashing out equity in their homes and spending like crazy. Same thing this time around except the Fed is pumping all the "money" into the economy.......when it stops.....end game."
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