MBS MID-DAY: Friday PM Weakness Erased; AM Weakness, Not so Much
By:
Matthew Graham
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MBS Live: MBS Morning Market Summary
With last Friday being the day after a holiday in the middle of summer, it's a fair assumption that NFP was the only reason for many bond market participants to be tuned in. It's a similarly fair assumption that they began tuning out by mid-day, especially after 11am when 10yr yields bounced at 2.67 and drifted off into the afternoon. This 'tuning out' doesn't necessarily mean that the ensuing movements didn't matter, but it is safe to say that markets were thinly traded and erring on the side of defensiveness. This morning then, we're seeing all of Friday afternoon's weakness being erased, though still contending with the brunt of the sell-off both in terms of Treasuries and MBS. 10yr yields are on the edge of that initial flush of selling, which topped out around 2.65 on Friday. From there, it's another 10 bps lower to the pre-NFP starting point of 2.55. Fannie 4.0s took over as the new current production coupon on Friday falling from 103-17 to 102-02. They've earned back just under half that and have mostly leveled off after this morning's initial unwinding of Friday afternoon leakage.
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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Morning 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 morning.
9:04AM :
Bond Markets Bounce Modestly Overnight; Stronger This AM
Treasuries began the overnight session trading just slightly higher in yield for less than an hour before Asian accounts began buying longer longer maturities. China led equities markets lower and the 'risk-off' trade persisted right through to the European open.
Easing concerns over Portugal and progress on the most recent leg of Greek bailout payment negotiations (the EU always must make it look like they won't give Greece money in order to force as much austerity as possible. It's so scripted at this point that reactions in broader markets are excessively muted) helped lift European equities markets and put slight pressure on bond markets.
US Treasuries were able to hold steady during European hours, bottoming out just under 2.7 and holding support at 2.71. Early domestic trading took advantage of post NFP uncertainty as yields were briefly run back up to 2.73 before swiftly moving back down into the 2.68's.
MBS opened flat to Friday's close and are already 13 ticks higher in Fannie 4.0s. There is no significant scheduled data today and the Fed's Treasury buying operation is the only event of note.
Easing concerns over Portugal and progress on the most recent leg of Greek bailout payment negotiations (the EU always must make it look like they won't give Greece money in order to force as much austerity as possible. It's so scripted at this point that reactions in broader markets are excessively muted) helped lift European equities markets and put slight pressure on bond markets.
US Treasuries were able to hold steady during European hours, bottoming out just under 2.7 and holding support at 2.71. Early domestic trading took advantage of post NFP uncertainty as yields were briefly run back up to 2.73 before swiftly moving back down into the 2.68's.
MBS opened flat to Friday's close and are already 13 ticks higher in Fannie 4.0s. There is no significant scheduled data today and the Fed's Treasury buying operation is the only event of note.
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.
Matthew Graham : "4.0s"
joon choi : "which fannie 30yr coupon are we watching 4.0 or 4.5?"
Jeff Anderson : "Ok, so we're back to the initial knee jerk after NFP on Friday. Let's recover come more, please."
Matthew Graham : "7bps is just another average day this summer."
Matthew Graham : "Here's how 10's look since May. I wouldn't read too much into today's relatively small movement. http://screencast.com/t/cP2A591NrwF"
Victor Burek : "I say they realize they way over sold on Friday"
Andy Pada : "what's going on with our own TSY and mbs today, MG?"
Matthew Graham : "they have 3, but the "main" one is at .50"
Andy Pada : "what is the current rate?"
Matthew Graham : "interesting to note the juxtaposition of "confirmed recovery" scenario and "lower rates for foreseeable future""
Matthew Graham : "RTRS- DRAGHI - RATES WILL STAY AT PRESENT LEVEL OR LOWER FOR FORESEEABLE FUTURE "
Matthew Graham : "RTRS - DRAGHI - WITH FORWARD GUIDANCE, ECB INJECTED DOWNWARD BIAS IN INTEREST RATES "
Matthew Graham : "RTRS- DRAGHI - WE SEE OUR BASELINE SCENARIO OF RECOVERY BEING CONFIRMED "
Dave Christensen : "I'm sure lenders will sandbag big time until volatility calms down ... not to mention they're not above taking a little advantage of the situation!"
Christopher Stevens : "pricing or rate? An 1/8th in pricing is not much based on market today."
Justin Harward : "Wow. Pricing this am is .125 better over Friday. That's pricing, not rate. Anyone else seeing that?"
Andrew Russell : "this volatility has to be a lock desk's nightmare"
Tom Sawyer : "Thank you WH. Still surprised so many on the forum believe that current levels aren't going to put a huge dent in purchase business in the short term"
Matthew Graham : "if stock markets crashed 1000 points in the dow and 100 pts in S&P, they'd still be "historically high." Would this not cause 'drama?'"
Andy Pada : "I don't know about that 5% acceptance; the Fed would be happy with 5% rates with a $60B a month purchase program? Hard to believe."
Matthew Graham : "all depends on perspective. Even 30yr vets are thinking it's pretty high if it just killed their pipeline"
Andrew Russell : "the fact that rates were in the double digits many years ago isnt pertinent to the stalled refinance market, or the purchase market that just got hit with a huge gut punch, between the new FHA cost, rates, etc?"
Matt Hodges : "sold upper 8's and one 9%"
Andrew Russell : "what does history have to do with the here and now? (Devil's advocate)"
B-C : "rates in the 5's should be low to everyone that is doing mortgages more than 3 years"
Matthew Graham : "I think so Vic. I'd add that they definitely seem to focus on spreads as well"
Victor Burek : "to the fed, isn't mortgage rates at 5% still low?"
Matthew Graham : "I don't think they're as speculative when it comes to potential ill effects of this rise in rates. I think it's all about what actually happens. If markets can 'survive' in terms of economic data, I don't think they'll care."
Andy Pada : "if the Fed felt the market's didn't get it when the 10 YR went to 2.5, what are they thinking now? dumb, feral pigs?"
Matthew Graham : "I don't think it's in the cards MR, but I wouldn't rule it out. I'm just saying they'd do that before they'd raise purchases, and it'd probably be plenty effective."
Matthew Reid : "MG is that even in the cards?"
Tom Sawyer : "I spoke to a sales rep this morning from a home builder here in Austin. She said there is real concern on contracts for new builds written in April and May. If it's an issue here, it's an issue everywhere."
Matthew Graham : "what if they said "we're no longer considering a reduction in asset purchases tied to economic thresholds." ?"
William Hansen : "I think the only way the fed can show they are in control is if they buy more than the 80 billion. "
Oliver Orlicki : "+16 on the 4 looks so small on the chart"
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