MBS MID-DAY: Treasury Auction Causes Some Weakness Ahead of FOMC
By:
Matthew Graham
•
MBS Live: MBS Morning Market Summary
While the most attention-grabbing headline of the morning so far has concerned the largest jump in Housing Starts since 1990, the sharpest movement was motivated by the extremely poor 5yr Treasury auction. Bond markets had been leaking into gradually weaker territory throughout the morning, but popped decisively lower in price after the 11:30am auction (moved up in the schedule to accommodate the afternoon's FOMC festivities). Even then, trading levels continue to push back against events that would normally cause bigger reactions were it not for the looming Fed Announcement.
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.
9:07AM :
Bond Markets Slightly Weaker After Housing Starts Data
It was another inconsequential overnight session as global financial markets await today's FOMC Announcement. Volume was low and volatility was completely absent until 8am.
After that, it became apparent that domestic accounts already had selling on their mind and were just waiting for the open. Volume picked up a bit and 10yr yields began rising ahead of the Housing Starts data, moving from 2.848 to 2.864.
During that same time, MBS were still getting their bearings for the morning as they tend to struggle with liquidity much more than Treasuries in the first hour. Fannie 4.0s opened 4/32nds weaker and fell another 2/32nds before the data.
After the data, both MBS and Treasuries sold off a bit further, but nothing commensurate with the magnitude of the Housing Starts 'beat.' In other words, we'd probably have seen much more weakness if we weren't waiting for the FOMC Announcement this afternoon.
From 2.864, 10yr yields rose to just under 2.88 and are now back down to 2.867. Interestingly enough, but perhaps unsurprisingly, all of this morning's movement has been well inside this week's previous highs and lows for both Treasuries and MBS.
After that, it became apparent that domestic accounts already had selling on their mind and were just waiting for the open. Volume picked up a bit and 10yr yields began rising ahead of the Housing Starts data, moving from 2.848 to 2.864.
During that same time, MBS were still getting their bearings for the morning as they tend to struggle with liquidity much more than Treasuries in the first hour. Fannie 4.0s opened 4/32nds weaker and fell another 2/32nds before the data.
After the data, both MBS and Treasuries sold off a bit further, but nothing commensurate with the magnitude of the Housing Starts 'beat.' In other words, we'd probably have seen much more weakness if we weren't waiting for the FOMC Announcement this afternoon.
From 2.864, 10yr yields rose to just under 2.88 and are now back down to 2.867. Interestingly enough, but perhaps unsurprisingly, all of this morning's movement has been well inside this week's previous highs and lows for both Treasuries and MBS.
8:41AM :
ECON: Housing Starts Much Stronger Than Expected
- Starts +22.7 pct, most since 1990
- Starts 1.091m Annual Rate vs 950k forecast
- Highest since Feb 2008
- Permits 1.007m vs 990k forecast
- Market Reaction: MBS and Treasuries sold off sharply at first. Though they're still weaker than pre-data levels, they'd finding their footing. More importantly, the reaction was nothing compared to what we might have seen if the FOMC Announcement wasn't coming this afternoon.
BUILDING PERMITS
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,007,000. This is 3.1 percent (±1.1%) below the revised October rate of 1,039,000, but is 7.9 percent (±1.6%) above the November 2012 estimate of 933,000. Single-family authorizations in November were at a rate of 634,000; this is 2.1 percent (±1.1%) above the revised October figure of 621,000. Authorizations of units in buildings with five units or more were at a rate of 346,000 in November.
HOUSING STARTS
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,091,000. This is 22.7 percent (±13.2%) above the revised October estimate of 889,000 and is 29.6 percent (±19.8%) above the November 2012 rate of 842,000. Single-family housing starts in November were at a rate of 727,000; this is 20.8 percent (±10.7%) above the revised October figure of 602,000. The November rate for units in buildings with five units or more was 354,000.
HOUSING COMPLETIONS
Privately-owned housing completions in November were at a seasonally adjusted annual rate of 823,000. This is 0.1 percent (±9.5%)* below the revised October estimate of 824,000, but is 21.6 percent (±11.3%) above the November 2012 rate of 677,000. Single-family housing completions in November were at a rate of 596,000; this is 3.2 percent (±11.6%)* below the revised October rate of 616,000. The November rate for units in buildings with five units or more was 221,000.
- Starts 1.091m Annual Rate vs 950k forecast
- Highest since Feb 2008
- Permits 1.007m vs 990k forecast
- Market Reaction: MBS and Treasuries sold off sharply at first. Though they're still weaker than pre-data levels, they'd finding their footing. More importantly, the reaction was nothing compared to what we might have seen if the FOMC Announcement wasn't coming this afternoon.
BUILDING PERMITS
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,007,000. This is 3.1 percent (±1.1%) below the revised October rate of 1,039,000, but is 7.9 percent (±1.6%) above the November 2012 estimate of 933,000. Single-family authorizations in November were at a rate of 634,000; this is 2.1 percent (±1.1%) above the revised October figure of 621,000. Authorizations of units in buildings with five units or more were at a rate of 346,000 in November.
HOUSING STARTS
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,091,000. This is 22.7 percent (±13.2%) above the revised October estimate of 889,000 and is 29.6 percent (±19.8%) above the November 2012 rate of 842,000. Single-family housing starts in November were at a rate of 727,000; this is 20.8 percent (±10.7%) above the revised October figure of 602,000. The November rate for units in buildings with five units or more was 354,000.
HOUSING COMPLETIONS
Privately-owned housing completions in November were at a seasonally adjusted annual rate of 823,000. This is 0.1 percent (±9.5%)* below the revised October estimate of 824,000, but is 21.6 percent (±11.3%) above the November 2012 rate of 677,000. Single-family housing completions in November were at a rate of 596,000; this is 3.2 percent (±11.6%)* below the revised October rate of 616,000. The November rate for units in buildings with five units or more was 221,000.
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.
Ira Selwin : "You educating sources about what you know"
Ira Selwin : "That's one of the advantages you have MG"
Michael Gillani : "Are we on this forum the only originators that are privy to new information about the industry or that choose to educate ourselves with such info? I've talked to several other originators this morning that work at other larger companies all of whom knew nothing about the new LLPA's or Gfee increase next year."
Matthew Graham : "some have done it regardless of market movement."
Matthew Graham : "we've seen it happen"
Michael Ullmann : "does anyone here know if big banks close their lock desk? I have one deal that I am ready to hit lock at 2:01 if need be. But dont want to run into a closed lock desk"
Andy Pada : "I think, purely from a stragegy perspectice, you ask for what you want and then negotiate implementation. Just a guess. Not necessarily going to be easy or even feasible, but need to take the first step."
Ira Selwin : "Investors will/have already begun to hit long term pricing"
Ira Selwin : "AP - one issue I see is though mba wants to suspend the gfee/llpa increases, these will be affecting us very quickly. "
Matthew Graham : "Yeah, that's pretty much how I feel CS. Only reason I'm not 100% committed to that outlook is that it seems so obvious."
Christopher Stevens : "MG- even if we rally are we talking about anymore than maybe 2.75-2.80 with a taper almost guaranteed by end of Q1'14"
Andy Pada : "mba response to the llpas"
Andy Pada : "http://mba.informz.net/MBA/archives/archive_2883218.html"
Victor Burek : "still far from a healthy housing market but improving"
Matthew Graham : "here's a chart: http://tinyurl.com/nhbsk4d"
Victor Burek : "but to put permits into perspective, 12/2007 they were 1.15million, 12/2006 they were 1.51millio, 12/2005 they were 2.16million"
Matthew Graham : "starts are more volatile, permits had been climbing steadily"
Victor Burek : "that is quite odd to have such a large increase in starts but not in apps"
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