MBS RECAP: Gains Mostly Maintained Despite Mid-Day Fade
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
Even though it was only by a small margin, both production MBS and Treasuries finish the day with a majority of the morning's gains intact. This was a very well-contained movement considering that 10yr Treasuries certainly bounced hard at the important technical level of 2.46 and went on to finish the day around 2.49, never going much above 2.50. It was made even more interesting by the fact that the entire rally maxed out within 1 hour of the initial data release at 8:30am. The extent to which this suggests that Housing Starts was more of a factor than Bernanke is debatable. Even without Housing Starts in the picture, the movement could have still looked front-loaded if markets were simply looking to rule out the presence of any new, dire information in the prepared text. Whatever the case, each piece of data helped and Bernanke's Q&A did little to reverse the positivity that had already hit the wall before he even began.
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.
2:00PM :
ALERT ISSUED:
Rerprice Risk Incrementally More Pronounced. FN 4.0s under 104-00
Headline says it all. We're still not free-falling, but we ARE still ratcheting lower--2 steps down, 1 step up, etc. Negative reprice risk is becoming slightly more likely for more than a small minority of lenders. Fannie 4.0s are still 7 ticks higher on the day, but well off their 104-07 highs, currently at 103-31. 10yr yields are up to 2.494 from 2.46 lows.
1:47PM :
ALERT ISSUED:
Negative Reprice Risk Increasing Moderately
We're by no means in the throes of a severe sell-off, but Treasury yields and MBS prices have been drifting gradually into weaker territory. Fannie 4.0s just crossed the 104-01 threshold that may be more consistent with a shift in risk. More simply put, we didn't view reprices as overly likely before, but now are entertaining the possibility that a few lenders might be entertaining the possibility. It's not a situation where a majority of lenders would get onboard with that just yet, but it is a risk.
11:00AM :
ALERT ISSUED:
VERY Important Technical Resistance in Play; Caution is warranted
(not a full-blow 'reprice alert' at the moment, but a loud heads up to stay cautious as Bernanke Q&A continues).
Regardless of how much of this morning's rally we chalk up to Housing Starts data vs Bernanke's prepared remarks, the fact remains that 10yr yields hit one of the most significant yield levels on the map at 2.46%. This is the 'brick ceiling' that yields hit after the FOMC Announcement in late June and has been a 'brick floor' ever since it was broken on June 21st. If you could only choose one important inflection point in the long, medium, and short-term, this would be it.
It doesn't look like a coincidence that the morning's rally stalled out at 2.46--CLEARLY bouncing MULTIPLE times before ebbing higher to 2.49-ish. Fannie 4.0s had been as highs as 104-07 and are now down to 104-02. The problem there is that the highs were seen just as many lenders were taking down markets for initial rate sheets.
That means that we're ALREADY teetering on the edge of negative reprice risk for the most reactive lenders. Although it's fair to hope and expect that many of them will not have left themselves open to these risks enough for 5 small ticks to matter, 5 ticks has mattered in the past. At the very least, we'd advocate caution from here. It only takes a few words from Bernanke to send this in either direction.
Regardless of how much of this morning's rally we chalk up to Housing Starts data vs Bernanke's prepared remarks, the fact remains that 10yr yields hit one of the most significant yield levels on the map at 2.46%. This is the 'brick ceiling' that yields hit after the FOMC Announcement in late June and has been a 'brick floor' ever since it was broken on June 21st. If you could only choose one important inflection point in the long, medium, and short-term, this would be it.
It doesn't look like a coincidence that the morning's rally stalled out at 2.46--CLEARLY bouncing MULTIPLE times before ebbing higher to 2.49-ish. Fannie 4.0s had been as highs as 104-07 and are now down to 104-02. The problem there is that the highs were seen just as many lenders were taking down markets for initial rate sheets.
That means that we're ALREADY teetering on the edge of negative reprice risk for the most reactive lenders. Although it's fair to hope and expect that many of them will not have left themselves open to these risks enough for 5 small ticks to matter, 5 ticks has mattered in the past. At the very least, we'd advocate caution from here. It only takes a few words from Bernanke to send this in either direction.
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.
Tom Schwab : "REPRICE: 3:04 PM - AMC Worse"
Rob Clark : "REPRICE: 2:21 PM - Provident Funding Worse"
Nate Miller : "REPRICE: 2:20 PM - Caliber Funding Worse"
Tom Schwab : "REPRICE: 2:19 PM - Franklin American Worse"
Tom Schwab : "REPRICE: 2:19 PM - Flagstar Worse"
Steve Chizmadia : "REPRICE: 2:09 PM - Sun West Mortgage Worse"
Justin Harward : "REPRICE: 2:06 PM - Great Western Bank Worse"
Justin Dudek : "REPRICE: 2:05 PM - Everett Financial Worse"
Thomas Nelson : "REPRICE: 1:56 PM - NYCB Worse"
Matt Hodges : "Matt - checked my last DC refi - no tax stamps, but $230 in recordation fees for the documents"
Matt Sullivan : "
Transaction Type
Select One...PurchaseRefinance
Amount
Enter purchase price
Enter new loan amount
Is the property five or more units?
Less than 5 More than 5 units
Transfer Tax
$0.00
Recording Tax
$0.00
Recording Fees
$0.00
Total
$0.00
really? The District of Columbia charges no transfer or recordation tax on the refinance of a property which has four or less units. If the property has five or more units, D.C. charges full recordation and transfer tax"
Jeff Statz : "I'd go on Stewart Title's info: The District of Columbia has both a recordation tax and a transfer tax. These two taxes are each 1.1% below $400,000 and 1.45% above $400,000 of the contract sales price. Unless otherwise negotiated the purchaser usually pays the Recordation tax of 1.1% or 1.45% and the seller usually pays the Transfer tax of 1.1% or 1.45%."
Ira Selwin : "Use the one in the middle"
Matt Sullivan : "one link says yes statz abd the other says no"
David Gaffin : "REPRICE: 1:45 PM - M&T Bank Worse"
Jeff Statz : "Matt Sullivan: http://www.ncsl.org/issues-research/budget/real-estate-transfer-taxes.aspx http://www.stewart.com/washington-dc/district-of-columbia "
Matt Sullivan : "anyone here know if there is a transfer tax in washington DC for a refinance?"
Matthew Graham : "they wouldn't adjust up unless they'd already adjusted down (by a lot). I firmly believe (and this is my opinion) that there is no chance we'll see more than $85 bln / mo, and the only reason it even came up is to soften the blow for markets that had grown overly complacent regarding the Fed's omnipresence."
Bill Laffey : " doesn't taper imply adjusting pace downward, whereas ben's trying to remind us they're open to adjust up or down?"
Matthew Graham : "make sure to separate the two in your mind if you haven't already"
Matthew Graham : "tightening rates is infinitely discrete vs tapering"
Caroline Roy : "thank you ben!! that is a nice bit of wording there. "
Ted Rood : "Like that one!"
Matthew Graham : "RTRS- BERNANKE: IF WE WERE TO TIGHTEN RATES, THE ECONOMY WOULD TANK "
Matthew Graham : "RTRS- BERNANKE SAYS NOT SEEING ANY PROBLEMS IN MBS MARKET "
Matthew Graham : "no assumptions right now LC. Still fighting the good fight. Small amount of reprice risk here, but almost imperceptible."
Andrew Horowitz : "depends on when they priced LC"
Louie Colatriano : "MG, what time do you assume lenders price for the new risk line?"
Ted Rood : "More importantly, is Maxine Waters done?"
Michael Gillani : "So is he done for today and talks again tomorrow/"
Michael Gillani : "I think in the current situation, they need to be concerned with interest rates only to the extent that they are a necessary means to get to their target points in price stability and employment."
Michael Gillani : " I agree MG but the problem is that I don't think it's possible to get to their inflation and jobs projections with rates where they are or higher is the problem."
Brent Borcherding : "Chicken or the egg, MG, but yes if everythign booms with rates at 10% they don't care. They also know that rates being low will help get this "recovery' of the ground, so yes they do care."
Matthew Graham : "they don't care where rates are if their metrics are satisfied. I promise"
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