MBS RECAP: Friday's Gains Erased; Treasuries Lead the Selling while MBS Outperform

By: Matthew Graham

Heading into today, we knew the recent run to low rates would be a risk from a corporate issuance standpoint.  The Day Ahead noted: " Last week's run to recent rate lows could greatly accelerate issuance plans (corporations would like to lock in borrowing costs at low rates)."  And that's turned out to be a key contributor to afternoon weakness as the corporate slate tops $20bln, much of that from one gigantic deal (Medtronic, $17bln).  Amazon joined the list of corporate issuers before the day was done, making for essentially constant pressure on bond markets.

Fortunately for MBS, Treasuries serve as the basis for most corporate bond pricing so Treasuries are what's sold during the hedging process.  As such, 10's lost much more ground today than MBS, moving well above Friday's highs while MBS prices managed to bounce in line with their weakest Friday levels.

Also fortunate (relatively) is the fact that morning rate sheets were stronger than the early gains would have suggested.  This is logically due to the conservative pricing strategies from last week (i.e. lenders holding back heading into a holiday weekend).  That's meant that this afternoon's rate sheets didn't end up looking all that different from Friday's, despite widespread reprices. 

We can forgive a bit of corrective volatility on the Monday following Thanksgiving--especially when it's the first day of December to boot.  Far more important and interesting will be where we go from here. 


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
100-29 : -0-11
FNMA 3.5
104-03 : -0-07
FNMA 4.0
106-23 : -0-04
Treasuries
2 YR
0.5040 : +0.0276
10 YR
2.2360 : +0.0632
30 YR
2.9630 : +0.0696
Pricing as of 12/1/14 6:18PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
4:38PM  :  ALERT ISSUED: More Corporate Bond Deals; More Reprice Risk
3:24PM  :  ALERT ISSUED: More Negative Reprice Risk as Corporate Debt Takes Toll
1:50PM  :  ALERT ISSUED: Negative Reprices Becoming More Likely
12:05PM  :  ALERT ISSUED: On the Edge of Negative Reprice Territory (Emphasis on "Edge")
10:52AM  :  Bond Markets Under Gradual Pressure Following ISM Data
9:05AM  :  Bond Markets Slightly Better than 'Unchanged,' but That's an Accomplishment

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - DUDLEY: FED WILL HIKE RATES MORE AGGRESSIVELY IF FINANCIAL MARKETS ARE LESS RESPONSIVE"
Matthew Graham  :  "Interesting headline preceding the last little bump in the 10yr: RTRS- FED'S DUDLEY: PACE OF POLICY TIGHTENING TO DEPEND ON FINANCIAL MARKET RESPONSE, NOT JUST ECONOMIC OUTLOOK"
Kenneth Crute  :  "MU 3.875 with a decent credit 3.75 with no credit maybe small cost depending on loan size "
Travis Waters  :  "i think in turbo tax he put the moving expenses under Unreimbursed employee expenses when he shouldn't have. this was stated, but turbo tax doesn't audit so he could have put it in that line by accident. looking at a schedule A it should probably be under line 28."
Michael Ullmann  :  "ny deal 95 ltv 740+ credit scores, who is pricing at 3.875% or lower today on a 55 day lock? I am getting 3.99 with Freddie with a small credit but I cant get to 3.875% yet. And based on the charts today I don't see me getting there today"
Travis Waters  :  "obtain form 3903 to show it is a moving expense. as SK stated u/wing should only care about form 2106."
Travis Waters  :  "http://mndne.ws/1A8171s this is the form for moving expenses. I agree that this shouldn't be counted against him since it is not a business related expense."
Kenneth Crute  :  "line 21 should say "attached form 2106 or 2106 EZ) line 21 on Schedule A is probably where your UW picked this up "
Tim McNerney  :  "the exepnses are on sched A...he did move two eyars in a row for college and job related reasons I don;t see a form 2106 just sched A"
Sung Kim  :  "it doesnt matter what one can or cannot do, form 2106 are the only expenses that should be used against the borrower, not sch. a"
Dennis Oleesky  :  "its my understanding that you can not deduct moving expenses unless you are moving more than 50 miles from your current location for a new job. Are there moving expenses 2 years in a raow?"