MBS MID-DAY: Much Stronger Data Not the Full Story Behind Bond Market Correction

By: Matthew Graham •

Yesterday's recap noted an increased risk of weakness today due to the technical bounce at 1.852.  Here it is.

No, really, today is pretty much that simple.  It would have taken some serious motivation for bonds to extent the rally any further ahead of NFP.  Reason being: the mid 1.8 zone (1.84-1.86) is one of the most consistently relevant inflection points for 10yr yields in recent  years.  I went into greater detail on this in the Day Ahead.  If you're interested in this technical level stuff, there's a good chart in that article.

If you're less interested in that technical stuff, suffice it to say that this morning's data combined with the strength of the existing rally made this a logical place to circle the wagons ahead of tomorrow's NFP.  Jobless Claims haven't had much of an impact lately, but today's report was stronger than the average beat.  In fact, claims were only 2k away from 15 year lows.  Factory Orders at 10am were also much stronger than expected, effectively clearing the brush from the path of least resistance for today

Bottom line, whether technical or data-driven (take your pick, it doesn't matter), we simply have a bounce and consolidation ahead of NFP.  It might not have happened if data objected, but that was far from the case.

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
102-14 : -0-05
FNMA 3.5
105-06 : -0-03
FNMA 4.0
106-31 : -0-04
Treasuries
2 YR
0.5440 : +0.0050
10 YR
1.8950 : +0.0360
30 YR
2.5100 : +0.0440
Pricing as of 4/2/15 12:53PMEST
Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:05AM  :  ALERT ISSUED: Negative Reprice Risk Increasing For Some Lenders After Trifecta of Data Surprises
8:49AM  :  Bond Markets Taking a Hit From Stronger Data
Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS- US CONTINUED CLAIMS FELL TO 2.325 MLN (CONS. 2.405 MLN) MARCH 21 WEEK FROM 2.413 MLN PRIOR WEEK (PREV 2.416 MLN)"
Matthew Graham  :  "RTRS- US JOBLESS CLAIMS FELL TO 268,000 MARCH 28 WEEK (CONSENSUS 285,000) FROM 288,000 PRIOR WEEK (PREVIOUS 282,000)"
B C  :  "Better off try to amortize over 30 years and do a credit supp"
Victor Burek  :  "only go around would be FHA"
Victor Burek  :  "As a result, Fannie Mae is modifying the monthly payment calculation from 2% to 1% of the outstanding balance. In addition, for all student loans, regardless of their payment status, the lender must use the greater of the 1% calculation or the actual documented payment. 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."
Victor Burek  :  "Research has shown that actual monthly payments are typically lower than 2%. In addition, many student loan repayment structures now use an income­based approach in calculating changes in the payment due over time."
Victor Burek  :  "In determining the payment for deferred student loans, Fannie Mae currently requires that the lender obtain a copy of the borrower’s payment letter or forbearance agreement or calculate the monthly payment at 2% of the balance of the student loan."
Victor Burek  :  "Fannie Mae requires that all deferred installment debt, including student loans not yet in repayment, be included in the calculation of the borrower’s debt­to­income ratio."
John McClellan  :  "not that i am aware of. "
benjamin levin  :  "Good morning , quick question exclusion of deferred student loans on conforming loans underwriter says no longer allowed per Fannie and Freddie changes ... Any go around that?"