MBS MID-DAY: Volatility Within a Range Ahead of FOMC

By: Matthew Graham •

Treasuries once again broke away from the pack in the overnight session and moved higher in yield.  Cues from related markets didn't suggest that weakness, but we saw a similar move early Monday morning.  In both cases, yields had stretched down to recent lows in the previous day and overnight trading acted as a technical correction.

Looking at this another way, we could also conclude that the overnight session didn't offer the same level of 'fuel' for an ongoing flight to safety.  As we've discussed on several occasions recently, the bond rally  requires a constant, fresh supply of disturbing global market developments in order to continue breaking new ground.  Instead, last night was pretty uneventful in the context of recent volatility.

Heading into the domestic session, we had weaker inflation data that ostensibly helped bond markets bounce back.  I wouldn't read too much into that though, considering that the core CPI reading was right in line with forecasts.  Realistically, bond markets aren't doing much at all this morning.  Zoom out to a slightly wider view and you'll see a simple consolidation in prices and yields heading into today's FOMC events.  MBS are trading perfectly inside yesterday's range and are down less than an eighth of a point in both Fannie 3.5s and 3.0s. 

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
101-12 : -0-03
FNMA 3.5
104-11 : -0-01
FNMA 4.0
106-18 : -0-03
Treasuries
2 YR
0.5890 : +0.0330
10 YR
2.0990 : +0.0380
30 YR
2.7130 : +0.0230
Pricing as of 12/17/14 12:45PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:40AM  :  ALERT ISSUED: Slight Increase in Negative Reprice Risk For Some Lenders
9:35AM  :  Bond Markets Bounce Back After Weaker CPI, Not Necessarily Because of it
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "It's a talented free agent that joined the team mid-season and helped our winning streak continue."
Matthew Graham  :  "I agree with myself AND the article. Oil is definitely helping, but it's not the only input."
John Tassios  :  "I agree with MG, rates started coming down early 2014, way before oil started coming down"
Matthew Graham  :  ""The Bank of America Merrill Lynch analysis notes a “non-trivial possibility” of reaching the 3.25% to 3.5% range on the 30-year fixed-rate mortgage if the slide in oil prices is sustained." Do you think there's no possibility of reaching those rates if oil goes back up? I mean it was over 80 dollars a barrel when we briefly hit 3.75% on 10/15."
Scott Valins  :  "what's tighter besides c/o LTV?"
Chris Hooker  :  "Noticed some chat about FNMA tightening, anyone else concerned about this: http://mndne.ws/1wgEdW1"
Christopher Stevens  :  "“The oil collapse of 2014 appears to have been a key driver” of lower interest rates this year, wrote Chris Flanagan, a mortgage-rate strategist at Bank of America Merrill Lynch, in a report last week. “Further oil price declines could lead the way to sub-3.5% mortgage rates.”"
Matthew Graham  :  "RTRS- U.S. NOV REAL AVERAGE WEEKLY EARNINGS ALL PRIVATE WORKERS +0.9 PCT, BIGGEST GAIN SINCE NOV 2008 (CONS +0.3 PCT) VS OCT +0.1 PCT (PREV +0.4 PCT)"
Matthew Graham  :  "RTRS- U.S. NOV CPI -0.3 PCT, BIGGEST DROP SINCE DEC 2008 (-0.2567; CONSENSUS -0.1 PCT); EXFOOD/ENERGY +0.1 PCT (+0.0711; CONS +0.1 PCT)"
Sung Kim  :  "right, and no IBR will do that"
Ira Selwin  :  "Sung - going back to the IBR - An exception will be allowed to use the actual documented payment if it will fully amortize the loan over its term with no payment adjustments."
Matt Hodges  :  "i've used IBR 3x this year...this isn't good"
Sung Kim  :  "everyone see the new requirement for student loans for next year? greater of 1% or documented student loan payment - basically IBR deals are dead"