MBS MID-DAY: Weaker After Data, Sideways Since
By:
Matthew Graham
•
MBS Live: MBS Morning Market Summary
The second day of Bernanke Q&A with Congressional committees is done and with shockingly little fanfare. Then again, it's not that shocking considering the assessment of yesterday's testimony: "Ben didn't really SAY anything. There was nothing much "new"
offered in the speech or the Q&A. While he did firm up the notion
of unemployment being around 7% when QE ended, that was essentially
where he left off back in June. If anything, markets were almost
perfectly guarded against surprises, didn't get any, and softened their
stance just a bit." Today then, that "stance" is hardening again and charts show the stronger-than-expected Philly Fed data as the primary culprit (10am was clearly the most concerted move of the day for bond markets and nothing during the Q&A moved yields enough to set it apart from random aimless drifting). The topic of cause and effect must be taken with a grain of salt though, because markets continue to show how tuned out they are--tacitly suggesting near-term Fed-speak can't really do much more to change the broader outlook. Following that tortuous path of logic leads us back to economic data. In other words, the Fed said their piece in May and June. Markets have honed in on their comfort zone as the Fed has moderately refined and reinforced their message, and now economic data stands the only chance of suggesting a change in that message. That's how a Philly Fed report moves markets more than Bernanke.
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.
10:16AM :
No Longer Finding Support; Reprice Risk Increasing
For a few minutes, bond markets found some support after the initial move lower inspired by the Philly Fed numbers. We just ratcheted to slightly weaker territory, slightly increasing the prospects for negative reprice risk among those lenders who were out with pricing before the data. Fannie 3.5s are down 6 to 100-30, Fannie 4.0s are down 4 to 103-28 and 10yr yields are at their highs of the day just under 2.52.
10:08AM :
ECON: Philly Fed Index Stronger, Bond Markets Finding Support
- Philly Fed 19.8 vs 7.8 consensus
- 6-month outlook 44.9 vs 33.7 previously
- New Orders 10.2 vs 16.6 previously
- prices paid 21.5 vs 22.5 previously
- Employment Index 7.7 vs -5.4 previously
- Market Reaction: Initially weaker for bond markets, but potentially holding ground with minimal losses so far.
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 12.5 in June to 19.8, its highest reading since March 2011. The percentage of firms reporting increased activity this month (37 percent) was greater than the percentage reporting decreased activity (17 percent).
Other current indicators suggest continued growth this month. The shipments index increased notably, from 4.1 in June to 14.3. The demand for manufactured goods as measured by the current new orders index remained positive, although it fell back 6 points to 10.2. Firms reported a drawdown of inventories this month: The inventory index fell 15 points, from -6.6 to -21.6.
Labor market conditions showed a notable improvement this month. The current employment index, at 7.7, registered its first positive reading in four months. The percentage of firms reporting increases in employment (18 percent) exceeded the percentage reporting decreases (10 percent). Firms also indicated an increase in the average workweek compared with June.
- 6-month outlook 44.9 vs 33.7 previously
- New Orders 10.2 vs 16.6 previously
- prices paid 21.5 vs 22.5 previously
- Employment Index 7.7 vs -5.4 previously
- Market Reaction: Initially weaker for bond markets, but potentially holding ground with minimal losses so far.
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 12.5 in June to 19.8, its highest reading since March 2011. The percentage of firms reporting increased activity this month (37 percent) was greater than the percentage reporting decreased activity (17 percent).
Other current indicators suggest continued growth this month. The shipments index increased notably, from 4.1 in June to 14.3. The demand for manufactured goods as measured by the current new orders index remained positive, although it fell back 6 points to 10.2. Firms reported a drawdown of inventories this month: The inventory index fell 15 points, from -6.6 to -21.6.
Labor market conditions showed a notable improvement this month. The current employment index, at 7.7, registered its first positive reading in four months. The percentage of firms reporting increases in employment (18 percent) exceeded the percentage reporting decreases (10 percent). Firms also indicated an increase in the average workweek compared with June.
10:03AM :
ALERT ISSUED:
Bond Markets Selling On Stronger Philly Fed
A quick heads-up before we send out the actual recap of the release: it was stronger than expected (19.8 vs 7.8 consensus and the employment component was strong as well). The first move for bond markets has been to the weak side. 10's up to 2.515 and Fannie 3.5s and 4.0s both down 3 ticks. This borders on reprice risk territory for lenders that were out with rates already, but more so if we continue into weaker territory from here.
9:52AM :
Back Into Positive Territory ahead of Philly Fed and Bernanke
Both Fannie 3.5s and 4.0s are back into positive territory now. 3.5s are up a tick to 101-04 and 4.0s up 2 ticks to 104-01. The break above 2.50 in 10yr yields heading into 9am drew in buyers, facilitating a return under 2.5, but only just. 10's are currently at 2.495. Ranges remain relatively narrow, volume relatively light, and liquidity relatively thin.
That's a complicated way of saying that there's no obvious headline cause and effect behind the quick dip and bounce. The other suggestion is that it takes fewer dollars and fewer like-minded participants to move trading levels, adding a bit of uncertainty and volatility. Philly Fed is coming up at 10am as well as Bernanke delivering yesterday's speech to the Senate with Q&A following shortly thereafter.
That's a complicated way of saying that there's no obvious headline cause and effect behind the quick dip and bounce. The other suggestion is that it takes fewer dollars and fewer like-minded participants to move trading levels, adding a bit of uncertainty and volatility. Philly Fed is coming up at 10am as well as Bernanke delivering yesterday's speech to the Senate with Q&A following shortly thereafter.
9:05AM :
ALERT ISSUED:
MBS Quickly Getting Illiquid and Losing Ground
From a 'reprice risk' standpoint, this would only apply to those of you with access to overnight prices protection or who are otherwise able to lock at yesterday's rates, but MBS liquidity is getting a bit shaky already. Fannie 4.0s are 4 ticks off their pre-data highs, down 2 on the day to 103-30. 10yr yields have risen steadily over the same time from 2.487 to 2.5077 currently.
8:38AM :
ECON: Jobless Claims Lower Than Expected
- Claims 334k vs 345k Consensus
- 4-wk Average down to 346k from 351,250 previously
- Continued Claims 3.114 mln vs 2.959 mln consensus
- Market Reaction: essentially none in terms of price levels though volume did what it normally does when Claims is the only 8:30am release. This suggests some measure of balance within the report itself, where the higher continued claims or seasonality issues are offsetting the stronger headline.
In the week ending July 6, the advance figure for seasonally adjusted initial claims was 360,000, an increase of 16,000 from the previous week's revised figure of 344,000. The 4-week moving average was 351,750, an increase of 6,000 from the previous week's revised average of 345,750. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending June 29, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending June 29 was 2,977,000, an increase of 24,000 from the preceding week's revised level of 2,953,000. The 4-week moving average was 2,970,750, a decrease of 3,500 from the preceding week's revised average of 2,974,250.
- 4-wk Average down to 346k from 351,250 previously
- Continued Claims 3.114 mln vs 2.959 mln consensus
- Market Reaction: essentially none in terms of price levels though volume did what it normally does when Claims is the only 8:30am release. This suggests some measure of balance within the report itself, where the higher continued claims or seasonality issues are offsetting the stronger headline.
In the week ending July 6, the advance figure for seasonally adjusted initial claims was 360,000, an increase of 16,000 from the previous week's revised figure of 344,000. The 4-week moving average was 351,750, an increase of 6,000 from the previous week's revised average of 345,750. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending June 29, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending June 29 was 2,977,000, an increase of 24,000 from the preceding week's revised level of 2,953,000. The 4-week moving average was 2,970,750, a decrease of 3,500 from the preceding week's revised average of 2,974,250.
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 : "RTRS - WATT NOMINATION TO HEAD FEDERAL HOUSING FINANCE AGENCY APPROVED BY COMMITTEE WITH NO REPUBLICAN SUPPORT; VOTE SENDS NOMINATION TO FULL SENATE "
Matthew Graham : "RTRS- U.S. SENATE BANKING PANEL APPROVES NOMINATION OF REPRESENTATIVE WATT TO OVERSEE FANNIE MAE AND FREDDIE MAC "
Matthew Graham : "RTRS- PHILADELPHIA FED EMPLOYMENT INDEX JULY 7.7 VS JUNE -5.4 "
Matthew Graham : "RTRS- PHILADELPHIA FED SIX-MONTH BUSINESS CONDITIONS JULY 44.9 VS JUNE 33.7 "
Matthew Graham : "RTRS- PHILADELPHIA FED BUSINESS CONDITIONS JULY 19.8 (CONSENSUS 7.8) VS JUNE 12.5 "
Bill Laffey : "have had that same scenario and have had to get the letter only to prove it's a forced distribution, not a voluntary distribution that the client can change. Your letter would have killed the deal for me, but sealed the deal for you. Go figure."
Oliver Orlicki : "data time...round 2"
Brent Borcherding : "I've actually seen that loosen, MG. I have some specific guides that say if deposit is less than 25% of monthly income, does not need to be sourced."
Gary Bracht : "Couldn't agree more MG, spot on"
Michael Gillani : "Sourcing large, recent deposits, I totally understand, but these small cash deposits on deals where borrowers have little in their account and are bringing little to the table is ludicrous."
Michael Gillani : "This whole more recent directive of sourcing deposits in bank accounts is crazy. I started as deposits over $500 and now I have UW wanting me to source $100 deposits. So we are now telling Americans that they cannot deposit cash into their own bank accounts if they want to finance a house."
Michael Gillani : "You know it's not always so much the qualification guidelines that are debilitating but rather the menial bs we have to go through to get a clean deal to the table. For example, an FHA streamline, coming to closing with $1,500 in funds to close, who has a balance in their checking account of $1,800 but has a cash deposit on their statement of $400 that can't be sourced because their friend paid them back cash for whatever reason and hence deal dies. The borrower would have to make their mortga"
Brent Borcherding : "I would also, agree, the UW standards are just fine where they are."
Matthew Graham : "I wouldn't mind a healthy debate at to whether or not standards are close to OK as they are now, but I couldn't understand a debate as to whether or not there's been a significant move back toward "loose.""
Patrick McCarroll : "Like 100% financing on investment properties MG? Ha"
Matthew Graham : "For me, I'm more interested in the notion of the "10yr cycle" he mentions, and the fact we can probably all agree on that we're nowhere near the "heyday" standards, despite being 6 years or so away from the peak."
Jason York : "I think a lot of it isn't so much how tight the guidelines are, but more how the UW's are interpreting them and how there is no room for common sense to be applied anymore"
Jason Anker : "i dont think they are tight at all, would lend my money to half the people I fund. The only guide I don't like at all is HARP eligability. HARP for ALL I say."
Ira Selwin : "I am always curious what people think are currently "tight" guideliens thats all."
Jason Anker : "VA loan, bor had SS on credit from 10/2012 - got a Refer which was as expected. Told him in Oct of 2013 I'll get an accept and we'll be good to go"
Ira Selwin : "What made the loan yesterday not fit?"
Jason Anker : "Hmm, can't say for sure, all the time. One just yesterday. "
Jason Anker : "part time as only job going from 2 years to 1 year is all I got"
Jason Anker : "can anyone here give one single example of a guide getting more loose in the past 4 years? "
Andrew Horowitz : "liesman just explained it, seasonal adjustments over the last two weeks to take account for the auto makershistorical shut downs"
Matt Hodges : "MG - technical reasons why initials keep coming in under projections, but continued is much higher?"
Oliver Orlicki : "muted response thus far"
Matthew Graham : "big jump in continued claims"
Matthew Graham : "RTRS- US CONTINUED CLAIMS ROSE TO 3.114 MLN (CONS. 2.959 MLN) JULY 6 WEEK FROM 3.023 MLN PRIOR WEEK (PREV 2.977 MLN) "
Matthew Graham : "RTRS- US JOBLESS CLAIMS 4-WK AVG FELL TO 346,000 JULY 13 WEEK FROM 351,250 PRIOR WEEK (PREVIOUS 351,750) "
Matthew Graham : "RTRS- US JOBLESS CLAIMS FELL TO 334,000 JULY 13 WEEK (CONSENSUS 345,000) FROM 358,000 PRIOR WEEK (PREVIOUS 360,000) "
Rob Migasi : "Just watched the video with BB&T's CEO. He was concerned that underwriting is getting to lose again. I couldn't disagree more. I'm I missing something here?"
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