MBS RECAP: Bond Markets Not Making for Easy Pre-Fed Strategy Decisions

By: Matthew Graham •

Nice rally today.  10yr yields hit their lowest levels since June 5th and MBS hit their 'roll-adjusted' highs over the same time frame.  Gains were in place from the start of the overnight session, and mid-morning weakness can retrospectively be blamed on Europe.  After Europe closed, the rally resumed and we're heading out at the best levels here at the end of the session.

There are some caveats though.

First of all, it was a low-volume, low-liquidity day.  This exaggerates the movement in bond markets.  Light volume accomplishes this by creating an environment where an average-sized trade represents a bigger piece of the day's total action.  Low liquidity accomplishes this because it forces traders to "take what they can get" in cases where there aren't enough counterparties for a trade they need to make. 

Finally, from a technical standpoint, the big-picture inflection point has been the 2.28-2.31 range.  With yields hitting lows of 2.307 today, we're not even testing the inflection point yet.  This keeps the risk alive that yields will end up "confirming" this inflection with a bounce higher tomorrow or some time soon.  There's no rule that says bond markets have to behave like this though.  Ultimately, the momentum (or lack thereof) will probably have most to do with what the Fed says, how the forecasts evolve, and Yellen's press conference.

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
99-22 : +0-10
FNMA 3.5
103-03 : +0-09
FNMA 4.0
105-30 : +0-07
Treasuries
2 YR
0.6900 : -0.0160
10 YR
2.3110 : -0.0480
30 YR
3.0410 : -0.0470
Pricing as of 6/16/15 4:54PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:52AM  :  ALERT ISSUED: Negative Reprice Risk Increasing Slightly; Still Not Full-Blown
10:02AM  :  ALERT ISSUED: Drifting in an Unfriendly Direction; Early Reprice Risk Considerations
9:25AM  :  Here's a Good Chance to Set Yourself Apart
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Bryce Schetselaar  :  "nice chance to lock here with a reprice before tomorrow"
Matthew Graham  :  "Greece needs to very quickly understand that global financial markets are not as vulnerable as they were in 2011, and Germany needs to realize there are PEOPLE in Greece who are essentially the same constituents of the EU as the PEOPLE in Germany. Until Europe figures this cross-border unity thing out, it ain't gonna work. "
Matthew Graham  :  "5 years of fruitless, life and death, back and forth between Greece and Eurozone creditors, mass emigration, runs on banks, riots in the streets, political divisiveness, the shaking of the very foundation of Greek society, but THIS... THIS is what we needed... For the new Treasury Secretary from America to make some generic BS comment that adds no value to anyone's situation ever. Toothless platitudes are getting old..."
Matthew Graham  :  "most definitely "
Matthew Durso  :  "Was that previous comment sarcasm, MG?"
Matthew Graham  :  "Thank goodness! Now we can finally make some progress!"
Matthew Graham  :  "RTRS- U.S. TREASURY'S LEW TOLD GREEK PM BY PHONE IT WAS URGENT GREECE MAKE A 'SERIOUS MOVE' TO REACH COMPROMISE WITH CREDITORS-TREASURY OFFICIAL"
Caroline Roy  :  "for REO properties listed on the 1003? that is strange"
Scott Valins  :  "got an LOE and uw is saying he needs letter from the two banks stating he doesn't have HO6"
Jason Anker  :  "on NON subject prop?"
Scott Valins  :  "has two condos loans from 2004 and 2006 no HO6 was required"
Scott Valins  :  "have you guys dealt with owned condos that don't have HO6 b/c they are either free and clear or the loans are old and no HO6 was required when loan was taken?"
Matthew Graham  :  "Ohhhh.... don't worry, everyone! It's just consumers' misconceptions! http://mndne.ws/1dIr95k I'll grant you, this is a factor as well, but probably not as big a factor as our inability to lend to a lot of people who would like to get homes (who have jobs, and excellent primary housing payment histories), but who simply can't qualify because they lack the assets, down payment, or a few points of DTI. We have a solution for them though! More multi-fam construction! http://mndne.ws/1QBjlV6"