MBS RECAP: Erring on Side of Caution Ahead of NFP
By:
Matthew Graham
•
MBS Live: MBS Afternoon Market Summary
Nearly a month ago, the three day time frame at the end of this week stood out as vastly important to bond markets due to the level of information received that could inform the Fed Tapering consensus. In other words, after the payrolls report on July 5th, tomorrow's payroll's report was the next big thing. The fact that the FOMC Announcement, Month-End, and ADP fell 2 days before it meant that we'd have this hectic three day period culminating in tomorrow morning's final verdict (until the next payrolls report and September FOMC Announcement). That left today as the odd man out in terms of this week's more relevant days, but both of the morning's data points were economically bullish enough to demand attention. Taken together with Wednesday's generally stronger-than-expected economic data, today's Jobless Claims (best since Jan 2008) and ISM Manufacturing data (best since mid 2011) were enough to overwhelm yesterday's modestly dovish FOMC Announcement and month-end buying support. This didn't happen all at once, but a sell-off that was merely 'strong' became stronger into the close as several dealers put out revised NFP forecasts and big block trades in 5s and 10s hit with less than 20 minutes left before the 3pm Treasury close. Those 18 and a half minutes were relatively frenetic compared to mid-day and left Treasuries and MBS at their weakest levels since early July.
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.
3:07PM :
ALERT ISSUED:
Negative Reprices Even More Likely (2nd Rounds Too)
MBS liquidity has left the building. Treasuries broke technical support in active trading and flushed through to higher yields quite quickly. There's no news or event behind the move--simply late session tradeflow snowballs (what's a tradeflow?).
Fannie 3.5s are down over a point at 99-27 and 4.0s down a point at 103-00. It's impossible to say that these are actual price levels as buyers and sellers of MBS are so very far away from each other that trades aren't actually being executed. Rather, quoted bid and ask prices are just flapping violently in the pre-NFP wind.
Traders are cognizant of the fact that the wind could become a hurricane tomorrow and not just for MBS, but Treasuries as well. Considering the 3pm "close" (when fixed income trade desks mark their end-of-day positions/levels), this move looks most like a pre-NFP defensive lead-off.
Even lenders who have already repriced, may do so again.
Fannie 3.5s are down over a point at 99-27 and 4.0s down a point at 103-00. It's impossible to say that these are actual price levels as buyers and sellers of MBS are so very far away from each other that trades aren't actually being executed. Rather, quoted bid and ask prices are just flapping violently in the pre-NFP wind.
Traders are cognizant of the fact that the wind could become a hurricane tomorrow and not just for MBS, but Treasuries as well. Considering the 3pm "close" (when fixed income trade desks mark their end-of-day positions/levels), this move looks most like a pre-NFP defensive lead-off.
Even lenders who have already repriced, may do so again.
2:45PM :
ALERT ISSUED:
MBS Continue Melting; Negative Reprice Pressure Remains
Especially for lenders that haven't yet repriced for the worse, but even for some who already have, negative reprice risk remains in force. MBS haven't changed their tune heading into the PM hours and simply continue melting away to lower prices in a very different way than this morning (which was more of a shattering/cracking vs melting).
Fannie 3.5s are down 26 ticks to 100-04 and Fannie 4.0s are down 20 ticks to 103-12. This is far enough from previous levels that some lenders may come back for 2nd reprices. That said, if you didn't lock last Friday or yesterday afternoon, you were likely floating through NFP tomorrow anyway. If this sell-off is too rich for your blood, then get out now. Tomorrow could be much worse if NFP beats big.
Fannie 3.5s are down 26 ticks to 100-04 and Fannie 4.0s are down 20 ticks to 103-12. This is far enough from previous levels that some lenders may come back for 2nd reprices. That said, if you didn't lock last Friday or yesterday afternoon, you were likely floating through NFP tomorrow anyway. If this sell-off is too rich for your blood, then get out now. Tomorrow could be much worse if NFP beats big.
11:17AM :
ALERT ISSUED:
Negative Reprice Risk Increasing as MBS Falls to Low of Day
The FNMA 3.5 coupon fell to 100-07 and the 4.0 fell to 103-12, both at the lows of the day. Lenders that have already released rate sheets are in a position to reprice for the worse.
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 Carver : "REPRICE: 3:57 PM - Sierra Pacific Worse"
Matthew Carver : "REPRICE: 3:57 PM - Flagstar Worse"
Jason York : "REPRICE: 3:38 PM - Everbank Worse"
Nate Miller : "REPRICE: 3:36 PM - Green Tree Worse"
Bert Swyers : "REPRICE: 3:34 PM - Franklin American Worse"
Bert Swyers : "REPRICE: 3:33 PM - NYCB Worse"
Nate Miller : "REPRICE: 3:32 PM - Caliber Funding Worse"
Nate Miller : "REPRICE: 3:31 PM - Freedom Mortgage Worse"
Michael Ullmann : "last commenet to add some insult to injury: I closed a townehouse purchase yesterday fha, rate was 3.75% with 2 point lender credit back to the borrower. I remeber when I locked on 6/13 the borrower complained the rate was very high"
Ted Rood : "Great opportunity to show your agents how proactive you are, MU, when you call them and tell them to drop the shopping price by 30K."
John Rodgers : "I wish he just would have said, we are tapering in sept. I think our selloff would have been over by now."
Richard Carvajal : "MG, if I may, if the beat is big, could you use the word "Apocalypse" in the recap? I'd like to highlight that word and use it as a reference as to what rates have done these past few months. "
Michael Ullmann : "I wrote 5-10 pre approvals last week, each borrower was fha or va we discussed 4.125-4.25. After tomorrow I will be discussing 4.5 plus"
Matthew Graham : "very wide range of possibilities. 2.5-2.9 (2.86 is more of a legit technical target, fwiw)"
Michael Ullmann : "WH: Wait till tomorrow when the 10 hits 2.90"
William Hansen : "We didn't even get the payroll numbers yet and the market is acting like they came out great"
Matthew Graham : "Claims helped too. Lowest since Jan 2008, nothing to shake a stick at. Factor in potential month-end buying buoying yesterday afternoon and the ebb and flow between lows and highs over two days makes more sense"
Ted Rood : "ISM date pushed the snowball towards the ledge, and late day speculation on a exceptional jobs report propelled it off the cliff."
Jason Anker : "leaking into NFP, defensive trades"
Matthew Graham : "or anyone else for that matter, feel free"
Matthew Graham : "MG2, pretend you're me, and write my answer to that question"
Michael Gillani : "So ISM means this much now?"
Jason York : "REPRICE: 3:13 PM - Plaza Worse"
Justin Dudek : "REPRICE: 3:12 PM - Everett Financial Worse"
Eric Franson : "REPRICE: 3:11 PM - Wells Fargo Worse"
Rob Clark : "REPRICE: 3:10 PM - Stearns Lending Worse"
Matt Sullivan : "lesser of the two would be fine....just wondering if its standard to just not count it at all"
Hugh W. Page : "I have heard of some UWs not allowing any if it's declining though"
Hugh W. Page : "Right, if it's declining one year to the next use the lower number (more conservative)"
William Hansen : "lesser of the two"
Hugh W. Page : "My UW will usually use lower number"
William Hansen : "cant use declining bonus/ot income. If you can justify the decline you might get a u/w to use an average or the lower number. "
Dio Vannucci : "Matt, short answer is yes. We had to go back further and show that the variance was normal as well as obtain a letter from the employer explaining how the bonus system worked. Also, the YTD bonus calculated out higher than the 2012 avg which helped our argument"
Matt Sullivan : "if a borrower has a history of bonus income and it changes every year, have you ever heard of an undewrwriter not counting it because it was less in 2012 then in 2011?"
Nate Miller : "REPRICE: 11:49 AM - Green Tree Worse"
Jason York : "REPRICE: 11:48 AM - Fifth Third Mortgage Worse"
Nate Miller : "REPRICE: 11:48 AM - Caliber Funding Worse"
Walter Hoskins : "REPRICE: 11:47 AM - Chase Worse"
Christopher Stevens : "REPRICE: 11:47 AM - Wells Fargo Worse"
Matt Hodges : "you share a common sentiment, WP... this site is invaluable"
William Packer : "I just want to thank you MG, for your website. It has saved me tens of thousands of dollars since I came here and allowed me to make money during that time frame. So thought i'd reach out and say thanks. "
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