MBS RECAP: Best day of MBS Gains in Nearly 4 Weeks
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
The last day MBS put in a 20 tick gain was Thursday June 6th, just before NFP Friday. It would be excellent if we could conclude that today meant something broadly positive for the longer term trends in bond markets, but alas, we'll have to settle for "absence of negative" as the best possible assessment. Even so, that's an improvement from the recent state of affairs. Additionally, the confirmation of a sideways consolidation was always supposed to be the first step in pulling up from the tail-spin. We didn't expect to come stampeding back toward previous levels and in a weird way, today's 20 tick stampede back toward previous levels is just a vote in favor of that sideways theme. Reason being: volatility. The range has been so wide and traversed so frequently that today's 20 tick gain--something that would very likely be an "overt rally day" in the past--simply serves to ping the high and low ends of a trading range that's been growing more and more narrow.
If prices had fallen back below opening levels during the late-morning sell-off, the consolidation would have been challenged. Instead, it remained well-behaved and prices headed calmly back in the other direction. The same epic consolidation is taking place in Treasuries where Friday set up the starting point for low yields, Monday tested high yields, Tuesday revisited the lows (but not AS low) before doing the same with the highs, and now Wednesday has continued the same pattern of lower highs and higher lows. Context today was provided by GDP in the morning, which helped bond markets start out the day near their best levels while the conclusion of the POMO gave way to the pre-auction concession that took yields back toward the highs of the consolidative range. Even a lousy auction wasn't enough to merit the concession afforded (translations: bond markets were really defensive about the 5yr auction and even though the auction was rough, it wasn't rough enough to block attempts to rally afterward.
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.
3:57PM :
MBS Tiptoe Higher into the Close
The shaky sideways indecision seen in Treasuries after the auction has continued to be--well--'shaky sideways indecision.' MBS slowly began to trust the trading levels and have managed to eke out a few ticks of improvement here and there. Some lenders repriced positively after the last update and that continues to be a possibility into the close.
All that having been said, we're still trading in a consolidating range inside the the week's previous extremes. In other words, the stability is great, and it's had the added benefit of continuing to build on yesterday's lows (which in turn built on Monday's lows), but we haven't seen a break of the broader trend yet. That's a victory for intraday bullishness and a draw for the longer term trend.
All that having been said, we're still trading in a consolidating range inside the the week's previous extremes. In other words, the stability is great, and it's had the added benefit of continuing to build on yesterday's lows (which in turn built on Monday's lows), but we haven't seen a break of the broader trend yet. That's a victory for intraday bullishness and a draw for the longer term trend.
2:10PM :
After Holding Ground, Choppy Rally May not go Unopposed
Positive reprice potential looked like it might have been rising a bit as prices have done the some following post-auction ground-holding. Those aspirations are probably tabled at the moment as markets try to sort out whether or not this is a sustainable push back against the pre-auction concession or if it's merely opportunity for more nimble account types to cash in some small gains after the morning's weakness stalled out.
To simplify: MBS had been falling from 9:20am through the 5yr Treasury auction, but then held steady. Some bond traders may have placed bets on that fall and may now have cashed in on those bets after the auction. There are many other scenarios where so-called 'fast-money' accounts can have incremental effects on trading levels, but that example would be the obvious one for today.
The result is that we're left with a bounce back that is somewhat lacking in conviction. This is typical of "short-covering" rallies (those 'bets' on lower bond prices were short bets, and traders 'cover' their short by buying bonds, thus cashing in on the difference between AM trading levels and current levels).
Unfortunately, this doesn't offer any clues as to what happens next, but so far it looks short covering is managing to push prices just a bit higher. If they're able to get 10yr yields to sustain a break of 2.53, we might see less opposition to the rally extending to 2.51. Otherwise, we're grinding sideways in Treasuries at the moment and MBS are improving just slightly.
Positive reprice potential looks like it's very close to being a reality for 1 or 2 of the quicker-to-act lenders, but the timing of the previous negative reprices makes that less of a given. Very equivocal cues on trading screens right now... but perhaps the absence of weakness is the positive takeaway.
To simplify: MBS had been falling from 9:20am through the 5yr Treasury auction, but then held steady. Some bond traders may have placed bets on that fall and may now have cashed in on those bets after the auction. There are many other scenarios where so-called 'fast-money' accounts can have incremental effects on trading levels, but that example would be the obvious one for today.
The result is that we're left with a bounce back that is somewhat lacking in conviction. This is typical of "short-covering" rallies (those 'bets' on lower bond prices were short bets, and traders 'cover' their short by buying bonds, thus cashing in on the difference between AM trading levels and current levels).
Unfortunately, this doesn't offer any clues as to what happens next, but so far it looks short covering is managing to push prices just a bit higher. If they're able to get 10yr yields to sustain a break of 2.53, we might see less opposition to the rally extending to 2.51. Otherwise, we're grinding sideways in Treasuries at the moment and MBS are improving just slightly.
Positive reprice potential looks like it's very close to being a reality for 1 or 2 of the quicker-to-act lenders, but the timing of the previous negative reprices makes that less of a given. Very equivocal cues on trading screens right now... but perhaps the absence of weakness is the positive takeaway.
1:10PM :
5yr Auction Fairly Weak. Delayed Reaction. Concession May Have Helped
While the share of the auction accounted for by indirect bidders was much larger than normal, the stats that speak more to the health of the auction were much weaker. For instance, the awarded yield was 0.6bps higher than expected and the bid-to-cover (a measure of demand) was significantly weaker at 2.45 vs an average 2.8 over recent auctions.
Still, we have yet to see this kick off a frenzied move into weaker territory and can loosely surmise that a good portion of this morning's weakness was to build in a concession for the uncertain auction. That now looks to have been a much needed event, and possibly kept the results within the realm of acceptability (very weak, but not outside the ranges of auction metrics over the past few years).
There's precious little to conclude beyond that, and the indecisive price action attests to that fact. We'll let you know if the indecisive theme gives way to sufficient incremental weakness to warrant more negative reprices, but unless that happens, 'so far so good,' with respect to weathering the weak results with aplomb. Fingers crossed.
Still, we have yet to see this kick off a frenzied move into weaker territory and can loosely surmise that a good portion of this morning's weakness was to build in a concession for the uncertain auction. That now looks to have been a much needed event, and possibly kept the results within the realm of acceptability (very weak, but not outside the ranges of auction metrics over the past few years).
There's precious little to conclude beyond that, and the indecisive price action attests to that fact. We'll let you know if the indecisive theme gives way to sufficient incremental weakness to warrant more negative reprices, but unless that happens, 'so far so good,' with respect to weathering the weak results with aplomb. Fingers crossed.
12:02PM :
ALERT ISSUED:
Weakness Continues Ahead of Auction; More Negative Reprice Risk
If you haven't yet seen a negative reprice, you're increasingly likely to as MBS continue to leak lower ahead of the 5yr Auction. Fannie 3.5s are now down to 100-10, half a point off the highs though still 12 ticks above the lows. 10's have continued higher as well, after breaking 2.54 support and are now getting close to 2.57.
11:06AM :
ALERT ISSUED:
Some Post-POMO Volatility. Reprice Risk Increasing Slightly
Whereas there was a small amount of reprice risk at the time of the last alert, there's slightly more now. It's still too soon to say that we're entering any sort of abrupt sell-off, but pressure is mounting to the downside after the results of the Fed's scheduled daily Treasury operation (permanent open market operation, or "POMO").
There's no strategic significance to that data, but it can cause supply/demand imbalances that cause price movements. MBS are getting some of the ill effects of that at the moment and have just moved to their post-GDP lows at 100-014 in Fannie 3.5s. This is certainly justifiable reprice risk territory for some lenders though it's still half a point higher vs yesterday. 10's broke 2.54 support and are up to 2.548 currently.
There's no strategic significance to that data, but it can cause supply/demand imbalances that cause price movements. MBS are getting some of the ill effects of that at the moment and have just moved to their post-GDP lows at 100-014 in Fannie 3.5s. This is certainly justifiable reprice risk territory for some lenders though it's still half a point higher vs yesterday. 10's broke 2.54 support and are up to 2.548 currently.
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.
Joe Moran : "REPRICE: 3:13 PM - Citi Better"
Steve Chizmadia : "REPRICE: 3:09 PM - Pinnacle Better"
Hamid Hamrah : "REPRICE: 2:49 PM - PennyMac Better"
Sean Elliott : "REPRICE: 2:42 PM - Quicken Loans Wholesale Better"
Matt Hodges : "packer - we've encourage MG for years"
William Packer : "I think mg should go on cnbc .. Talk about rates and this website. Look into it mg. "
Tom Sawyer : "I love that the CNBC commentators are arguing that higher rates are good for housing."
Nate Miller : "REPRICE: 2:13 PM - Interbank Better"
Gus Floropoulos : "REPRICE: 1:26 PM - PHH Worse"
Dan Clifton : "REPRICE: 1:24 PM - Platinum Mortgage Worse"
Nikki Howarth : "REPRICE: 1:17 PM - Quicken Loans Wholesale Worse"
Justin Dudek : "REPRICE: 1:03 PM - Everett Financial Worse"
Matthew Graham : "big indirects, yet again, crappy demand, and medium large tail. I'd say C-. Santelli likes indirects, but he might still go D+ or D"
Matthew Graham : "RTRS - US TREASURY - PRIMARY DEALERS TAKE $15.19 BLN OF 5-YEAR NOTES SALE, INDIRECT $18.52 BLN "
Matthew Graham : "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.45, NON-COMP BIDS $36.01 MLN "
Matthew Graham : "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 1.484 PCT, AWARDS 61.53 PCT OF BIDS AT HIGH "
Eric Franson : "REPRICE: 1:00 PM - Wells Fargo Worse"
Matthew Graham : "5yr Auction coming up: The last 3 examples of 5yr auctions have come in at lower-than-expected yields (where "expected" = the 1pm level of the when-issued 5yr security or "WI"). Bid to cover has averaged right around 2.8 and has been steady. Indirects have also been fairly steady at 44%. WI is currently 1.48 "
Rob Clark : "REPRICE: 12:56 PM - Stearns Lending Worse"
Nikki Howarth : "on FHA"
Nikki Howarth : "REPRICE: 12:49 PM - Nationstar Better"
Matthew Graham : "RTRS- PIMCO TOTAL RETURN ETF DOWN 2.71 PERCENT YTD VERSUS TOTAL RETURN MUTUAL FUND, DOWN 4.03 PERCENT - LIPPER "
Matthew Graham : "RTRS- PIMCO TOTAL RETURN EXCHANGE-TRADED FUND BOND.P SEES NET OUTFLOWS OF $387 MLN SO FAR IN JUNE - LIPPER "
Andrew Russell : "A HA! Nice feature MG"
Matthew Graham : "I think any 'miss' will be suspect until revisions confirm after the April/May misdirection play."
Michael Gillani : "Would it need to miss a little or huge to make a difference in our current status quo, in estimation obviously"
Matthew Graham : "keep in mind you can always open the full ECON Calendar and skip ahead a week to see if any of next week's consensus estimate are already published. The link is at the bottom of the Econ calendar window, and should take you here: http://www.mortgagenewsdaily.com/mbs/econcalendar.aspx"
Michael Gillani : "170k is the NFP consensus?"
Matthew Graham : "170k"
Joe Moran : "so whats the expectation on NFP next week?"
William Hansen : "when will we close at the highs of a day in the green? "
Walter Hoskins : "REPRICE: 12:06 PM - Stonegate Mortgage Worse"
Nate Miller : "REPRICE: 12:04 PM - Caliber Funding Worse"
Frank Guirguis : "REPRICE: 12:01 PM - Flagstar Worse"
Jeffrey Coward : "REPRICE: 11:52 AM - USBank Worse"
Roger Moore : "REPRICE: 11:46 AM - Franklin American Worse"
John Tassios : "auction today coming up in 1 1/2 hour, traders may be selling a bit in front of that auction"
Jeff Anderson : "Should get an "After TSY supply is gone rally" tomorrow as 1:01. Has been a trend lately on action weeks, it seems."
Andrew Russell : "How difficult is it to get one from your current broker license? "
Roger Moore : "you can't simply just be mini corr. there is licensing involved."
Roger Moore : "if you are an independent company, you need to get a mortgage banking license"
Roger Moore : "if you are doing mini cor, you have to have a banking licernse"
Andrew Russell : "RM. What additional licensing are you referring to? For the broker or banker? "
Roger Moore : "agreed. mini corr seems like a good first step.. at minimum, it requires you to get the proper state licensing"
Matthew Carver : "REPRICE: 11:19 AM - Everbank Worse"
John Rodgers : "If you've saved your money and kept your nose clean now is a great time to become a mortgage banker. "
Matthew Carver : "REPRICE: 11:19 AM - Quicken Loans Wholesale Worse"
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