MBS RECAP: Catching Breath after FOMC

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
There's a decent enough chance that if you didn't know what happened yesterday, today's weakness would be just as frustrating as any other weakness.  There's even a chance you could have witnessed the 40 tick rally  and still been a bit let down by lack of follow through today.  While we wouldn't want to simply assume that the post-FOMC rally will continue unabated, neither would we want to assume that today's weakness means the post-FOMC rally is thwarted.

Of the several reasons for this, perhaps the most convincing is the fact that we just lived through the entirety of the last 4 months.   Where, during that time, have we seen a rally of that magnitude?  Where have we seen 6 consecutive sessions close in better territory.  Where have we seen both of those things become true on the same day?  Not only hasn't that happened in the last 4 months, but it's been at least a year for MBS and longer for Treasuries. 

Point being, the pain associated with getting overly bullish on bond markets since May is so pronounced, so ubiquitous, that it will take market participants some time spent observing each other abstain from knee-jerk sell-off corrections before learning how to love being bullish again, even if that bullishness can't have any overly-grand aspirations unless it's vetted by economic data.  We're waiting at least 2 weeks for such a possibility, but there are opportunities in the meantime.  The ability of MBS to mostly hold yesterday's gains is a great start.
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
96-15 : -0-13
FNMA 3.5
100-23 : -0-08
FNMA 4.0
103-30 : -0-07
FNMA 4.5
106-06 : -0-05
GNMA 3.0
97-13 : -0-08
GNMA 3.5
101-28 : -0-03
GNMA 4.0
104-25 : -0-04
GNMA 4.5
106-30 : -0-05
FHLMC 3.0
96-02 : -0-14
FHLMC 3.5
100-14 : -0-07
FHLMC 4.0
103-21 : -0-07
FHLMC 4.5
105-27 : -0-06
Pricing as of 4:08 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.

1:50PM  :  ALERT ISSUED: MBS Still Pushing Back, but Weak Enough For Reprice Risk
Although MBS continue to show more grace under pressure than Treasuries, we're trudging along in weak enough territory that negative reprices are a bit of an increased risk. Fannie 4.0s are only a tick lower than the last update, but they've been pinned to their lows and guidance-giving Treasuries are moving into higher highs for the day. Not every lender is likely to reprice negatively here, but the possibility is elevated for some.
1:12PM  :  Stumble After TIPS Auction Hopefully Resulting in a Bounce
While it seems that a few lenders have been pleasantly surprised to simply be holding in line with yesterday afternoon's range, others may care that we're back near the lows of the day again after the 10yr TIPS Auction.

These post-TIPS fluctuations typically blow over if they're seen at all, but so far, this one has carried yields to their highs of the day in Treasuries (10's at 2.745) and has Fannie 4.0s a tick from their lows at 103-29. Fannie 3.5s are similarly a tick off lows at 100-22.

This doesn't look like a runaway sell-off for either side of the market, but it sours the afternoon tone just enough to suggest keeping an eye out for any further weakness. Hopefully we hold ground here before breaking the lows in MBS. So far so good.
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.

Ben Biscoe  :  "REPRICE: 2:50 PM - Chase Worse"
Justin Harward  :  "I have a feeling yesterday's rally was the last hurrah for awhile. With tapering in the future, bond traders are going to be hesitant to buy since we all know nobody wants to be the one left holding the 3.5 bag"
Matthew Graham  :  "it's not like it was gonna happen and now it's not. There's been a big, thematic shift in the nature of bond markets from the pre-May epoch to now. I would argue (and did) that it was happening in Jan/Feb, in that we were moving from a world where QE was omnipresent, and potentially going to get bigger/extended to a world where QE was eventually going to go away. The last four months have really driven home the sense that it will go away eventually. Markets needed to hear that. It may have "
Ken Crute  :  "Nope, yesterday was a very unexpected surprise, take your gains and get ready for when tapering does start "
Timothy Baron  :  "Wasn't cancelled, just delayed."
Timothy Baron  :  "Traders know taper will happen eventually."
Justin Harward  :  "Does anyone else feel robbed? The last 4 months have been brutal and rates today remain 1% higher versus early May, all due to tapering talk... tapering which was canceled but we're still left with higher rates"
Rob Clark  :  "REPRICE: 2:30 PM - Interbank Worse"
Tom Schwab  :  "REPRICE: 2:21 PM - Franklin American Worse"
Nate Miller  :  "REPRICE: 2:20 PM - Green Tree Worse"
Ben Biscoe  :  "REPRICE: 2:10 PM - Wells Fargo Worse"
Matthew Carver  :  "the rally is just catching it's breathe before the big run!"
Matthew Graham  :  "No data tomorrow, options expiration (uncertain trading environment/volatility), and TSY auctions next week. I think we're seeing some caution in trading levels after yesterday's big move, but nothing that rules out a continuation of the move if data cooperates."
Jason York  :  "plus we had a HUGE rally yesterday, so yo ushould expect a little pullback, with the absence of anything big going on tomorrow, we could commence our rally more tomorrow"
Amitab Mukerjee  :  "I *love* this site, even if just to keep a pulse on things and learn from reading you guys "talk shop". "
Michael Prime  :  "MG, as a 20 year plus mortgage originator and a long time employee of a big bank with a lot of tools at my disposal, this is by far the best site I’ve used/seen. Keep up the good work."
Tim Y  :  "I guess its hard for some people to understand that passing on good advice on what rates are doing, especially in regards to locking can save your customer money, and is better in the long run, sure customers really don't have a clue as to how much we can save them when we execute a good lock but still, its invaluable if you value your clients best interest. "
Bryce Schetselaar  :  "based on the value I and other loan officers get from this site...I think there is some price inelasticity"
Rob Clark  :  "MG mentioned on CNBC again"

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