MBS RECAP: FOMC Announcement Wholly Overshadowed by GDP

By: Matthew Graham •

Tonight's theme: "not many."

It's not many times that GDP will crack 4% after being down more than 2% in the previous quarter, but it did today.

But that's because it's not many times that the US economy will grow at 3.5% in one quarter and then drop to -2.9% in the following quarter, all the while with job creation averaging over 200k, but it did that from Q4 2013 to Q1 2014 (i.e. something was wrong with that picture, and as we've discussed, it set today's result up to be much bigger).

Finally, it's not many times that an FOMC Announcement will be second fiddle as a market mover, but it was today, because of all of the above.

Less cryptically now...  Bond markets tanked right after GDP and never looked back.  The damage was fairly severe in the context of 2014 movement, but the saving grace is that we were very near the best levels of the year and that the weakness leveled off into the afternoon.

To borrow from tonight's Ratewatch analysis,

"The long term risk is that today's GDP marks a broad turning point for US rates markets (Treasuries, MBS, etc.).  There's an uncertain amount of balance brought to that risk from the ongoing slide in European rates markets.  For instance, German government debt just hit
an all-time low yield yesterday.  If the trends that brought it there continue, it will be hard for US rates to move up too quickly.  While there's no way to know how that will shake out, the short term risk lies primarily with Friday's jobs report.  If it's much stronger than expected, it will be a strong vote in favor of this week's potential role as a turning point."

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
98-02 : -0-21
FNMA 3.5
101-29 : -0-19
FNMA 4.0
105-05 : -0-15
Treasuries
2 YR
0.5590 : +0.0120
10 YR
2.5596 : +0.0976
30 YR
3.3135 : +0.0915
Pricing as of 7/30/14 6:17PMEST
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "In general, you'll find ample discussion on pros/cons with respect to relevant considerations affecting rates in the near future, but ultimately a vocal recommendation to arrive at your own lock/float conclusions with clients. In general (again), I think lock/float recommendations beyond the scope of "intraday reprice risk" do a disservice to an originator's creative process. The guys reaping the biggest benefits from the site are those who embrace that concept most fully. "
ryan bier  :  "Got all locked yesterday except 1. Now wondering what to do."
ryan bier  :  "Excellent site! First time on. Heck of a day to start! "
Jon Bodan  :  "Been out all AM....boy, I'm glad I locked up everything Monday. Tuesday was a fakeout making me second guess myself...."
Bryce Schetselaar  :  "Love this site. All locked up and very relieved "
Matthew Graham  :  "like the biggest theme of the past several weeks being that this morning had the chance to START a hard bounce off 2.47 that carries long-term significance. I also feel like I was clear in singling out GDP as the main potential instigator for reasons I went so far as to list in bullet points on several occasions. I must say I'm surprised by your surprise at this selling-pressure. I will also apologize if it hasn't been clear enough that today was a big deal and can be the START of a wave of negative momentum (that said, I'd wager there are quite a few folks here that absorbed that, so just let me know what more I can do in that regard next time)."