MBS RECAP: Still Calm; Storm Still Begins Tomorrow
By:
Matthew Graham
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MBS Live: MBS Afternoon Market Summary
We have it on good authority that tomorrow is Wednesday and that there's a lot of "stuff" going on that bond markets might care about. That includes the bright-and-early ADP Employment Report, the first look at Q2 GDP 15 minutes later along with Treasury's quarterly refunding announcement, the FOMC Announcement at 2pm, and the pervasive reality that it's "month-end," which adds another layer of complexity to all of the above as money managers are forced to match positions to various indices (creating 'phantom forces' that move markets without being easily attributed to overt headlines/events). Phew! That's a lot of stuff. Combine that with the fact that it could all be magnified, neutralized, or overpowered by Friday's big jobs report and you have all the ingredients for today's main dish: an exceptionally bland and flavorless bowl of anticipation, slid skillfully sideways across the countertop where we await the real news--the main dish(es)--tomorrow.
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.
3:17PM :
Bouncing Back After Hours; Reprice Risk Shifts
After the 3pm Treasury "close," bond markets are bounce back somewhat. 10yr Treasuries are back to unchanged levels just under 2.60, Fannie 3.5s are down only 1 tick on the day at 100-23 and Fannie 4.0s are down 2 ticks at 103-25. Both MBS coupons are more than 4 ticks off previous lows and have been doing a decent job of holding ground during this token intraday recovery.
Whether or not this means that some faster-acting lenders will reprice positively remains to be seen, but it does likely relieve most negative reprice risk from all but the slowest responders.
Whether or not this means that some faster-acting lenders will reprice positively remains to be seen, but it does likely relieve most negative reprice risk from all but the slowest responders.
12:51PM :
ALERT ISSUED:
Reprices Incrementally More Likely as Losses Hold
Although the broader range is far from threatening, the near-term movements in MBS increase the risks of negative reprices. Fannie 3.5s are now down 5 on the day at 100-19 and 4.0s are down 3 at 103-24. Most lenders will reprice if prices hold here or move lower. Of potential note: there's still nothing by way of news or data driving these changes--simply low volume/light-liquidity trading and positioning ahead of tomorrow's epic batch of potential market movers. In other words, there's nothing much of consequence happening right now except for lenders' rate sheets.
12:04PM :
ALERT ISSUED:
Negative Reprice Risk Increasing as MBS Hit Lows
While Fannie 4.0s have been able to hold their ground to a better extent, Fannie 3.5s are now at lows of the day, up 2 ticks at 100-25. There's no significant news or event driving the weakness, but it is enough to increase negative reprice risk for most lenders.
11:05AM :
Treasuries, MBS Hit Resistance As Fed Buying Winds Down
Just a heads-up about a potential shift in tone, or at least a "leveling-off." While this could turn right around and prove to be harmless, the concern at the moment is that Treasuries and MBS have both hit resistance levels, and were unable to break through on the slightly weaker Consumer Confidence numbers.
For Treasuries, the resistance floor is just over 2.57 and is shared with yesterday morning's resistance bounce just before 11am. MBS are running into ceilings from Friday afternoon with Fannie 3.5s topping out at 100-31 and 4.0s at 103-30. Neither are more than 4 ticks from those highs, keeping negative reprice risk at bay for now.
Bottom line, today's range is tight so far, and stands a decent chance of drifting to test it's higher or lower bound. The latter scenario could introduce reprice risk. If Fannie 3.5s break below 100-27 or 4.0s below 103-26, negative reprice risk would be ramping up. There are some supportive pivot points for 10yr yields just overhead so the verdict isn't quite in yet.
For Treasuries, the resistance floor is just over 2.57 and is shared with yesterday morning's resistance bounce just before 11am. MBS are running into ceilings from Friday afternoon with Fannie 3.5s topping out at 100-31 and 4.0s at 103-30. Neither are more than 4 ticks from those highs, keeping negative reprice risk at bay for now.
Bottom line, today's range is tight so far, and stands a decent chance of drifting to test it's higher or lower bound. The latter scenario could introduce reprice risk. If Fannie 3.5s break below 100-27 or 4.0s below 103-26, negative reprice risk would be ramping up. There are some supportive pivot points for 10yr yields just overhead so the verdict isn't quite in yet.
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.
Eric Franson : "REPRICE: 1:33 PM - Wells Fargo Worse"
Derek Nadvornick : "Every case is different. A young family starting off in a 1200 sq ft ranch mat be better off with an arm. They won't be there 30 years."
Scott Rieke : "No rush to pay it off. If inflation does kick in, I will definitely love that rate."
Scott Rieke : "That's the duration of most loans -- 7-8yrs. But things may have changed. I'll think twice about moving in 7yrs and leaving behind a 3.125% fixed on jumbo."
Derek Nadvornick : "I personally have a 10/1 ARM. I'll pay $13,000 less interest over the fixed term vs a 30 yr fix. I tell my clients that and let them look at the numbers to decide for themselves. 7 and 10 years = long time."
Matthew Carver : "REPRICE: 1:12 PM - Sierra Pacific Worse"
Joe Daquino : "There is nothing wrong with ARM's, I would never advise against them. In the high end market, ARM's are the standard. Guy with a $1.5 million + loan rarely ever has a fixed loan. "
JRS : "REPRICE: 1:05 PM - Suntrust Worse"
Tom Schwab : "REPRICE: 1:03 PM - AMC Worse"
Bryce Schetselaar : "REPRICE: 1:00 PM - Caliber Funding Worse"
Eric Lao : "REPRICE: 12:56 PM - Flagstar Worse"
Tom Bartlett : "-4 ticks just looks bad on the current chart but it is only 4 ticks worse currently."
Matthew Graham : "everyone pretty much has their seats staked out for tomorrow's parade of data, so any adjustments along the side of the road now become extra noticeable. "
Matthew Graham : "nothing "happened." Things look dramatic because of the narrow 2-day range and swings are exacerbated by lack of liquidity "
David Rudnick : "whoa... what just happnened!"
Rob Clark : "REPRICE: 12:33 PM - Provident Funding Worse"
Andy Pada : "I guess one can make the argument that it hasn't accomplished that purpose."
Victor Burek : "the purpose is to spur economic growth"
Andy Pada : "I know this is academic, but I think we have to ask what is the purpose of QE? And from there, we can opine as to whether tapering should occur."
Victor Burek : "sure hope so"
David Rudnick : "isnt tapering already priced into the rates?"
Andy Pada : "some guy on CNBC just said that the Treasury's reduction in treasuries will result in the Fed buying a higher % even with a taper."
Victor Burek : "higher rates are definitely stalling housing"
Rob Clark : "If they taper and the economy stalls it will be a lot more difficult to get it going again."
Rob Clark : "I am sure that is one thing they are talking about. How to be more clear. At least I hope so."
Victor Burek : "they sure haven't sent a clear message"
Andy Pada : "I guess my query is this: if an adjustment on asset purchases is based on more positive economic, in particular, employment and inflation, data, we haven't really "hit the marks" for any tapering. I get the Fed's concept, I'm just not understanding the application."
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