MBS MID-DAY: Steady in Weaker Territory After Home Sales Data; FOMC Minutes Ahead
By:
Matthew Graham
•
MBS Live: MBS Morning Market Summary
The overnight session was shockingly docile for Treasuries, with 10yr yields staying super-glued to the 2.81-2.84 range before entering domestic session hours in line with yesterday's best levels. MBS did the same with 4.0s opening up at 102-19, but both MBS and Treasuries began giving up ground even before the stronger-than-expected Existing Home Sales data. Additional weakness followed the data, but markets have been reluctant to run too far with it ahead of the FOMC Minutes at 2pm. The tone is generally cautious with stocks and bonds alike losing a bit of ground now.
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.
10:40AM :
Reprice Risk Wanes as Bonds Bounce Back
The Existing-Home-Sales-related selling was fairly short-lived and 10's just made it back to the 2.84 range boundary. Fannie 4.0s are back up to 102-16 after being quoted as low as 102-10 in the wake of the EHS data. This recovery greatly mitigates any negative reprice risk.
10:13AM :
ECON: Existing Home Sales Much Stronger Despite Rising Rates
- EHS 5.39 mln vs 5.15 mln consensus
- Highest since Nov 2009
- EHS +6.5 vs -1.6 previously
- Median Price +13.7 pct vs Jul 2012 ($213,500)
- 15 pct distressed sales
-Market Reaction: Bond Markets weaker. 10yr yields at highs of the day (2.857) and Fannie 4.0s at lows (102-12).
Existing-home sales rose strongly in July, with the median price maintaining double-digit year-over-year increases, according to the National Association of Realtors.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 6.5 percent to a seasonally adjusted annual rate of 5.39 million in July from a downwardly revised 5.06 million in June, and are 17.2 percent above the 4.60 million-unit pace in July 2012; sales have remained above year-ago levels for 25 months.
Lawrence Yun, NAR chief economist, said changes in affordability are impacting the market. “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines,” he said. “The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.”
Despite higher mortgage interest rates, Yun identified compensating factors that can sustain a continued recovery. “Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall.”
- Highest since Nov 2009
- EHS +6.5 vs -1.6 previously
- Median Price +13.7 pct vs Jul 2012 ($213,500)
- 15 pct distressed sales
-Market Reaction: Bond Markets weaker. 10yr yields at highs of the day (2.857) and Fannie 4.0s at lows (102-12).
Existing-home sales rose strongly in July, with the median price maintaining double-digit year-over-year increases, according to the National Association of Realtors.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 6.5 percent to a seasonally adjusted annual rate of 5.39 million in July from a downwardly revised 5.06 million in June, and are 17.2 percent above the 4.60 million-unit pace in July 2012; sales have remained above year-ago levels for 25 months.
Lawrence Yun, NAR chief economist, said changes in affordability are impacting the market. “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines,” he said. “The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.”
Despite higher mortgage interest rates, Yun identified compensating factors that can sustain a continued recovery. “Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall.”
10:04AM :
ALERT ISSUED:
Negative Reprice Risk Already
If you recall a certain big, early lender's negative reprice on Monday, you'd also want to assume it's a risk now with MBS off roughly 6 ticks from the 9:20am-ish time frame at which said lender takes marks for rate sheets.
Fannie 4.0s down 7 now at 102-12, but liquidity is spotty at best. next trade could be 2 ticks in either direction. Negative reprices are possible for any lender out early with rates.
Culprit is stronger than expected Existing Home Sales. Getting this alert out quick, with more to follow on that in a separate update.
Fannie 4.0s down 7 now at 102-12, but liquidity is spotty at best. next trade could be 2 ticks in either direction. Negative reprices are possible for any lender out early with rates.
Culprit is stronger than expected Existing Home Sales. Getting this alert out quick, with more to follow on that in a separate update.
9:16AM :
Bonds Hold Narrow Range Overnight, Slightly Weaker This AM
The extent to which Treasuries have adhered to yesterday's narrow range is almost spooky. (There's a good look at that range in the second chart of the 'Day Ahead' HERE.
Not only do 10yr yields continue to operate in this range so far this morning, but it held up flawlessly overnight as well. Light volume added to the sense of "waiting for Fed Minutes."
All that having been said, it's no guarantee that the range continues to be as perfect as it has been since yesterday morning. Existing Home Sales at 10am certainly would be within its rights to nudge levels higher or lower (if that doesn't happen beforehand).
At the moment, we're closer to the weaker end of the range with 10's at 2.833 and Fannie 4.0s down 3 ticks at 102-16 (still higher than most of yesterday's action). After the 10am data, the main event on today's horizon is FOMC Minutes at 2pm.
Not only do 10yr yields continue to operate in this range so far this morning, but it held up flawlessly overnight as well. Light volume added to the sense of "waiting for Fed Minutes."
All that having been said, it's no guarantee that the range continues to be as perfect as it has been since yesterday morning. Existing Home Sales at 10am certainly would be within its rights to nudge levels higher or lower (if that doesn't happen beforehand).
At the moment, we're closer to the weaker end of the range with 10's at 2.833 and Fannie 4.0s down 3 ticks at 102-16 (still higher than most of yesterday's action). After the 10am data, the main event on today's horizon is FOMC Minutes at 2pm.
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.
John Tassios : "My realtors are telling me they getting more and more cash buyers too, most of them investors, snapping up houses that potential 1st time homebuyers would have traditionally purch in the past"
Joseph Watts : "Read an article the other day that said 40% of home sales so far this year have been cash buyers."
James Barnes : "Wait till they see what happens to Augusts and Sept sales with the higher rates.."
John Rodgers : "did they survey 10 firms in Miami? "
John Rodgers : "Purchase activity is anemic right now. "
John Rodgers : "I'm not sure where MBA got those numbers from. "
Brent Borcherding : "Seeing as they conclude that eligible borrowers are "those who have at least 20% equity in their home, have a credit score of greater than 720", I'm going to assume that their numbers are a bit understated on who is "eligible" for refinance."
Ted Rood : "Fun news here from The Street: According to a recent report by LPS, with the rise in interest rates, the pool of borrowers who can still refinance shrunk 33% from 8.9 million in March to 5.9 million in June, representing about 12% of all active loans that can still be refinanced. LPS determines the pool of eligible borrowers by including those who have at least 20% equity in their home, have a credit score of greater than 720 and pay an interest rate of more than 5% on their mortgage. "
Matthew Graham : "RTRS- US JULY INVENTORY OF HOMES FOR SALE 2.28 MLN UNITS, 5.1 MONTHS' WORTH "
Matthew Graham : "RTRS- US JULY EXISTING HOME SALES +6.5 PCT VS JUNE -1.6 PCT (PREV -1.2 PCT)-NAR "
Matthew Graham : "RTRS- US JULY EXISTING HOME SALES 5.39 MLN UNIT ANNUAL RATE, HIGHEST SINCE NOV 2009 (CONS 5.15 MLN), VS JUNE 5.06 MLN (PREV 5.08 MLN)-NAR "
Matthew Graham : "Yes, I think guidance outside fundamentals will always be "accepted," when there are no fundamentals present (but there are about to be, so let's see how EHS goes)"
Matthew Graham : "i'm sure there are books, but I'm just making it up as I go and hoping no one calls me out (or if they do, that they can take over with the explanations while I go have some sun tea in the hammock."
Matthew Graham : "Volume doesn't always matter. It could just be that prices were grinding up against a technical level. If trade tickets are small and flat, one big trade is still going to have an impact even if the small, flat trading tickets are numerous. In other words, it's "guidance," in a market that's waiting for guidance. Lemmings, Herds, etc."
Amitab Mukerjee : "Is there a book that you know of that explains these dynamics? Not that you aren't perfectly helpful, but I want to learn even more."
Matthew Graham : "np, and to clarify the last bit about "asking why we're running," that would be an analogy for market participants sourcing the movement and deciding to step in with a contrary trading position based on the nature of the original motivation"
Amitab Mukerjee : "MG: So if volume is low such that one trade can send it running, what is to stop people from manipulating?"
Amitab Mukerjee : "MG: Thanks for the explanation, that helps alot!"
Matthew Graham : "At that point, all it takes is one average-sized trade to act as the crack of whip that gets the whole herd running together. Futures are a highly liquid market with faster execution than cash. Black box trading is a factor. A "program" can be set to sell a certain security based on the crossing of a certain price. It can also have a rule in place for securities close by on the yield curve (a rule to keep a certain distance between 10's and 30's for instance). In that way, the singular trad"
evan russell : "next to the cost value breaskdown"
Joe Ridings : "where can i find remaining economic life on an appraisal?"
Matthew Graham : "Ultrabond futures is just another term for 30yr Treasury Futures. It's a complementary market for cash Treasuries (whose yields are reflected on your screen). 9 times out of 10, they'll move in the same way at the same time. That's true in this case as the more parabolic rise in 30yr bond yields brought them in line with yesterday's high in the same way that Treasury futures prices were falling in line with their lows. "
Matthew Graham : "nonsense Amitab, if you're unclear on it, others likely are as well, so let's sort it out."
Amitab Mukerjee : "MG: I have some reading to do before I understand that paragraph."
Matthew Graham : "James, 2 ways to answer. Easier answer: not much of a drop with Fannie 4's only off 2 ticks from last check. More thorough answer would be a technical break in Ultrabond futures that triggered sell-stops throughout the TSY futures complex, which is why you're seeing 10's get hit a lot harder than MBS since 9:19am. MBS may catch up a bit though, we'll see shortly."
Amitab Mukerjee : "MG: is there any explanation for why yields are rising in anticipation of FOMC, and not just holding tight? People are just folding?"
James Barnes : "What just happened to make it drop?"
Gus Floropoulos : "once they have portfolio's of these loans (typically 100MM) they can go to the FED, LIBOR outlets etc, and leverage these portfolio's on those index's, however they remain to have the COF factor in their business model due to the regulators"
Gus Floropoulos : "although banks lend ARM's with an index + margin, the index is used as a benchmark, banks typically do NOT borrow on that index, they lend their depository money (for loans that are not sold), and have what's called "cost of funds". The regulators determine what their COF & margin need to be based on their asset size, and capital..."
Gus Floropoulos : "whats funny is the NY Fed buys HB loans, and they price them at conforming rates/spreads....we just hooked up with them and our HB pricing is magnificent"
Adam Dahill : "Anyone have comment as to why Hugh balance has been so awfulmformthe past few weeks? Jumbo pricing is better than HB. I've been increasing loan amounts when I can to get into jumbo programs "
Matthew Carver : "GM all- MG, great charts on the "day ahead" article. "
Jeff Anderson : "GM, all. Pretty big dip in the mortgage index. Good to see purchases hang in there."
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