MBS MID-DAY: This Monday is Actually Better Than Last Monday. Here's Why

By: Matthew Graham

Last Monday saw an unpleasant reversal of 2 days of gains heading into the previous weekend.  Now this Monday is going through some of the same motions.  But as we discussed on Friday and earlier this morning, things are different this time around, and none of this morning's weakness refutes that so far.  Here are a few things to keep in mind when considering that today is "less bad" than last Monday.

Right off the bat, it should be noted that volume is exceptionally light in the recent context.  Combined with the absence of meaningful economic data and the ongoing phenomenon of light liquidity, this greases the skids for trading to have a far bigger impact on market movement than it normally would.

From there, let's consider how US and European bonds have been moving together.  Last Monday's weakness was driven by a sharp, scary sell-off in Europe.  In today's case, however, German 10yr Bunds are mostly flat.  Additionally, we can clearly see US 10's take off like a stuck pig at 8:20am.  That's always a clue that tradeflow momentum is in control (because 8:20am is the CME open for Treasuries).

Tangentially related to the CME open, corporate debt issuance is also starting the week with a bang (related because some of the corporate debt hedging activities that are hurting Treasuries/MBS must wait for the CME open, depending on the traders and securities involved).

Bottom line: yes, it's another weak Monday, but it's not the same sort of weak Monday this time around.  In fact, today's trading range has been completely contained by Friday's.  By this time last Monday, the trading range had already crushed the previous session's yield highs several times over.  At current levels, the worst thing that might be happening is that we're consolidating ahead of Wednesday's FOMC.


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
100-28 : -0-13
FNMA 3.5
104-05 : -0-10
FNMA 4.0
106-20 : -0-06
Treasuries
2 YR
0.5610 : +0.0207
10 YR
2.2140 : +0.0663
30 YR
3.0110 : +0.0756
Pricing as of 5/18/15 12:53PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:03AM  :  ALERT ISSUED: Treasury Breakdown Continues; Reprice Risk Materializing
10:52AM  :  ALERT ISSUED: Teetering on Edge of Reprice Risk
9:19AM  :  Lowest Recent Rates + FOMC and 3-Day Weekend = Corporate Debt Bomb

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jason Anker  :  "http://mndne.ws/1wo2F3j"
Jason Anker  :  "the CFPB has a nice summary of the Federal Law that manages PMI, congress passed this back in the 90's. "
Jason Harris  :  "so pre-paying to 78% early does not require cancellation"
Jason Harris  :  "78% based on normal amm schedule is the law"
Morgan Hammer  :  "Do all lenders cancel PMI automatically once the balance hits. 78%? Do any of them do it at 80%? Thanks"
Ted Rood  :  "620 is minimum for Fan/Freddie"
Chip Harris  :  "So everywhere that I look, it appears as though Fannie and Freddie are at a 620 minimum FICO. I have an AE that is sating that he has seen approve / eligible under 620. I think he is incorrect. Anyone know anything different? DO gives me this: This loan casefile is ineligible for delivery to Fannie Mae because the representative credit score is less than 620."
Matthew Graham  :  "illiquid environment makes for easier snowballs in either direction. Check out the 5-day chart. We're still in the game."
Matthew Graham  :  "German yields are flat since the ope, suggesting we're only coping with unexpectedly high corp debt supply"
William Hansen  :  "it is like groundhog day from last Monday"
Matthew Graham  :  "RTRS - NAHB MAY INDEX OF HOME SALES OVER NEXT SIX MONTHS 64 VERSUS REVISED 63 IN APRIL"
Matthew Graham  :  "RTRS - NAHB MAY INDEX OF PROSPECTIVE BUYERS 39 VERSUS REVISED 40 IN APRIL"
Matthew Graham  :  "RTRS- NAHB MAY INDEX OF CURRENT SINGLE-FAMILY HOME SALES 59 VERSUS 61 IN APRIL"
Matthew Graham  :  "RTRS- U.S. MAY NAHB HOUSING MARKET INDEX 54 (CONSENSUS 57) VERSUS 56 IN APRIL"
Rich Cordova  :  "We are still in a good trading range I'm happy as long as it doesn't start looking like 5/11."
Frank Hanna  :  "Gained 16 over the course of a great Friday. Given 2/3rd of it back before 9 :("