MBS RECAP: Late Rally Preserves Range Trade

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
To be fair, the late rally actually only "further preserved" the range-trade.  The heavy lifting in that regard had already been accomplished by several bounces along supportive levels in both MBS and Treasuries.  In terms of 10yr yields, for instance, the attempt at boundary-breaking took yields over 2.62 on several occasions, but the last bounce was in just after 2pm, well before the afternoon fun began.  The fun in question is the Wall Street Journal's new business model of open market manipulation whereby Hilsenrath writes a Fed policy piece on Thursday or Friday, the week before an FOMC Announcement.  The pieces generally have a detectable slant and markets typically respond in a predictable way.  In this case, the slant was bond market positive, as is plainly evident in the NOW CHANGED headline: "Fed Likely To Consider Refining Easy-Money Message."  Yeah... That may have been a bit suggestive.  WSJ also claimed responsibility for the bond market rally shortly thereafter with the headline "Treasuries Stage Late-day Rise on Fed Policy Hopes."  Talk about efficient journalism... The second article could have been written at the same time as the first, simply saving some space to add in the specific trading level updates.  
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
96-29 : +0-07
FNMA 3.5
100-27 : +0-07
FNMA 4.0
103-28 : +0-09
FNMA 4.5
105-29 : +0-07
GNMA 3.0
97-31 : +0-09
GNMA 3.5
101-29 : +0-07
GNMA 4.0
104-14 : +0-08
GNMA 4.5
106-05 : +0-05
FHLMC 3.0
96-18 : +0-06
FHLMC 3.5
100-18 : +0-07
FHLMC 4.0
103-22 : +0-09
FHLMC 4.5
105-09 : +0-08
Pricing as of 4:04 PM EST
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.

3:34PM  :  Hilsenrath Headline Adds to Positivity
"At their July 30-31 meeting, Fed officials are likely to discuss whether to refine or revise "forward guidance," the words they use to describe their intentions for the next few years."

The article is all about the short term interest rate equation of Fed policy--NOT asset purchases. But it's the flavor of the moment, so traders aren't swimming against the current.
3:27PM  :  Bond Markets Farther Into Positive Territory After Hours
Both Fannie 3.5s and 4.0s are breaking to new highs on the day as 10yr Treasuries return to challenge 2.59 resistance. Positive reprices are increasingly possible from lenders that haven't come out with them already. Some lenders might be considering a 2nd round. There is no meaningful data or event behind this move. Fannie 3.5s are up 2 ticks at 100-22 and Fannie 4.0s are up 5 ticks at 103-24.
1:16PM  :  Limited Gains After Relatively Strong 7yr Auction
As of right now, we have only a moderate extension of the previous strength following the relatively strong 7-yr Note auction. The demand itself was weaker-than-average, but in line with recent auctions' tendency to see the same. The yield itself was lower than expected by 0.4 bps vs 1pm, which is the most positive aspect.

Even in the time it takes to type, we're already seeing the post-auction positivity sputter out as 10's quickly return to pre-auction levels just over 2.60. This doesn't necessarily mean we're reversing course and heading back toward higher rates, but simply that we're not stampeding toward better levels as a result of the data.

All that having been said, we did see some fairly good gains before the auction and lenders did have to put out rate sheets at lower prices earlier in the day. The longer current levels are held or improved upon, the more likely it is that we'll see a few more lenders think about positive reprices. Conversely, those prospects will diminish if this "sputtering out" follows through into weaker territory.

Bottom line, 11am-1:10pm was good. Next move is uncertain.
12:56PM  :  MBS Bounce Back Convincingly Ahead of Auction
Fannie 4.0s are now in positive territory and Fannie 3.5s are just 3 ticks off. 10yr yields are now just under 2bps higher on the day at 2.60 as the 7yr Auction approaches.

Positive reprices are possible at current levels. The past three 7yr Auctions have stopped through at lower-than-expected yields with less drop-off in bid-to-cover than other issuances. The average over the last 4 has been 2.65 and the last three yield awards were .007, .016, and .006 lower than expected respectively. The auction before that was .008 higher.

The "when issued" yield is where the "expectation" comes from and is currently 2.033, but the actual comparison of the auction will be made vs the 1pm level.
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- WELLS FARGO-DECISION BASED ON REGULATORY ENVIRONMENT AS CHANGES IN FEDERAL OVERSIGHT HAVE INCREASED COMPLEXITY, DIFFICULTY OF OPERATING MORTGAGE JVS "
Matthew Graham  :  "RTRS - WELLS FARGO SAYS WELLS FARGO VENTURES, UNIT OF WELLS FARGO BANK, N.A., PLANS TO WITHDRAW FROM ITS EIGHT JV IN MORTGAGE LENDING "
Matthew Graham  :  "RTRS - WELLS FARGO & CO WFC.N - NO IMPACTS ON CUSTOMER SERVICE OR LOAN PROCESSING ARE EXPECTED. "
Matthew Graham  :  "RTRS- WELLS FARGO & CO WFC.N - DECISION IS EFFECTIVE IMMEDIATELY AND IS EXPECTED TO BE COMPLETED OVER THE NEXT 12 TO 18 MONTHS "
Matthew Graham  :  "RTRS- WELLS FARGO WITHDRAWS FROM THE MORTGAGE JOINT VENTURE BUSINESS "
Nate Miller  :  "REPRICE: 3:09 PM - Interbank Better"
Victor Burek  :  "PRMG better too"
Rob Clark  :  "REPRICE: 2:43 PM - Pinnacle Better"
Nate Miller  :  "REPRICE - ESSEX better"
Lynn ONeal  :  "REPRICE: 2:10 PM - Franklin American Better"
Eric Franson  :  "REPRICE: 2:01 PM - Wells Fargo Better"
Lynn ONeal  :  "REPRICE: 1:51 PM - Platinum Mortgage Better"
William Hansen  :  "REPRICE: 1:47 PM - NYCB Better"
Nate Miller  :  "REPRICE: 1:43 PM - Homebridge Better"
Michael Owens  :  "REPRICE: 1:42 PM - Real Estate Mortgage Network Better"

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