MBS RECAP: Corporate Bond Market Weighs on Rates, but Narrow Range Prevails

By: Matthew Graham

It was a struggle to observe anything interesting in bond markets today.  That environment usually allows 'tradeflow considerations' to rise to the surface as far as market movement is concerned.  That's our catch-all term for trading that's driven by necessity and technicals rather fundamental economic data. 

In other words, there were no reports that out that prompted bond markets to begin giving up ground starting at 9am and to hold their ground in the afternoon.  But there were more than $8bln in new corporate bonds issued.  These create tradeflow motivations for Treasuries/MBS for 2 key reasons.  First, there's the simple fact that they act as an alternative investment for some investors.  Less obvious, but more sinister is the fact that their pricing is typically based on Treasury yields, and as such, that pricing is often "locked" via the selling of Treasuries.  Whenever firms decide to take out these "rate-lock hedges," there is immediate selling pressure in bond markets.

We contended with some of that today, and it left Treasuries slightly weaker.  Fortunately, not all firms hedge in this way, and oftentimes, the hedges are bought back after the deal is launched.  This limited the losses for Treasuries, as did the technical support just over 1.90 (10yr yield).  Beyond that, MBS held their ground a bit better as they're less directly affected by the Treasury-specific tradeflows.  By the end of the day, Fannie 3.0s were only 1 tick weaker from Friday's latest levels.


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
102-16 : -0-01
FNMA 3.5
105-06 : -0-01
FNMA 4.0
106-30 : -0-01
Treasuries
2 YR
0.5240 : +0.0119
10 YR
1.8860 : +0.0207
30 YR
2.5560 : +0.0381
Pricing as of 4/20/15 5:22PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:54PM  :  ALERT ISSUED: Pressure Continues; Reprice Risk Makes a Stronger Showing
10:41AM  :  ALERT ISSUED: Negative Reprice Considerations For a Lender or Two
9:57AM  :  Quiet Morning Trading Inside Friday's Ranges
9:12AM  :  Simplified Table of Fannie LLPA/AMDC Changes

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Bryce Schetselaar  :  "US bank wholesale is at 99.0 on that scenario. A broker at 1 could do that. "
Daniel Kramer  :  "i am seeing 3.375% to 3.50%"
Ted Rood  :  "was there a tiny little * somewhere that led to the tiny (5/1adjustable rate) at the bottom?"
robert clark  :  "My neighbor got a letter offering 2.75% with 2 points."
robert clark  :  "Has anyone seen VA rates less than 3% with points? Under $417,000."
Gilbert Denizard  :  "if you meet the seasoning requirement and have a really good LOX you should be ok if you already have your LP approval"
Scott Lushing  :  "just a regular 2nd that got charged off in a short sale but never got it wiped out"
Scott Lushing  :  "anyone ever had a problem with a VA loan where the borrower had a prior mortgage charge off? it was a 2nd on a short sale from a few years back"