MBS RECAP: Widespread Positive Reprices After Yellen Treads Lightly

By: Matthew Graham

Most of Yellen's congressional testimony today was occupied by political axe-grinding rather than thoughtful dialogue on the path of monetary policy.  But on the occasions where she was given the opportunity, Yellen didn't raise any major red flags regarding the immediacy of the first rate hike.  That part--as it turns out--was about as clear as it was going to get at 8:30am when her prepared remarks were released.

On the topic of the Fed's policy path, Yellen hasn't deviated from the script recently.  Today was no exception as she said she still sees the first hike in 2015.  With that, markets braced for impact, relatively speaking.  It wasn't much of a 'bracing,' but enough to push 10yr yields from 2.39 to 2.43. MBS experienced the same episode as a drop from 102-25 to 102-16 in Fannie 3.5s.

From there, bonds had already begun to recover by the time Yellen began answering questions. Once she made it clear that the Fed really was 'data dependent' and would not be interested in raising rates if it risked causing a recession, the rally commenced.  Gains topped out in the afternoon with most lenders repricing positively along the way.

Was today all about Yellen?  Certainly not.  European markets actually rallied better, and it could be argued that US bond markets were simply waiting to make sure Yellen didn't say anything alarming before catching up with the European rally.  US rates were also hampered, at first, by a few big corporate bond deals (which add selling pressure in Treasuries). 


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
99-14 : +0-08
FNMA 3.5
102-28 : +0-06
FNMA 4.0
105-25 : +0-04
Treasuries
2 YR
0.6330 : -0.0080
10 YR
2.3560 : -0.0410
30 YR
3.1420 : -0.0500
Pricing as of 7/15/15 5:48PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
8:52AM  :  ALERT ISSUED: Sharp Sell-Off After Data, Yellen Text, and Corporate Issuance

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Ira Selwin  :  "Surprised no one has mentioned the Freddie Mac updates - some interesting ones in there - http://mndne.ws/1J1dAel"
Joel Marks  :  "besides the impact of closing my eyes, grinding my teeth and repeating my mantra "I envision low inflation and global politco-economic uncertainty," is there any reason for this nice move? Oh, looks like MG may have an answer in his mid-day update..."
Andrew Horowitz  :  "she is referring to the transitory economy"
Andy Pada, Jr.  :  "is she referring to current economy or forecasted economy?"
Dio Vannucci  :  "Taken as a one liner that sounds devastating but in the context of her explanation it made much more sense. "
Victor Burek  :  "yes, it will make homes even more unaffordable for most"
Gavin Luckman  :  "She HAD to say that huh"
Matthew Graham  :  "RTRS - FED'S YELLEN - ECONOMY CAN TOLERATE HIGHER RATES, NEEDS THEM"
Matthew Graham  :  "posted my most esoteric analysis of the Yellen speech on twitter: http://mndne.ws/1La0ltp"
John Tassios  :  "QE's all over the place, and countries still cutting rates and devaluing their currencies. China will be next one in line to be ultra aggressive, once their stock mkt selloff resumes. The bull run in TSY's still has legs to run."
Matthew Graham  :  "RTRS- BOC'S POLOZ: LOWER C$ WILL HAVE A POSTIIVE EFFECT ON TOURISM AND ON EXPORTS"
Matthew Graham  :  "RTRS - BOC'S POLOZ: QUANTITATIVE EASING IS AMONG THE BOC'S TOOLS"
Matthew Graham  :  "RTRS- BOC'S POLOZ: CENTRAL BANK'S PRIMARY MISSION TAKE PRECEDENCE OVER RISKS TO FINANCIAL STABILITY FROM HOUSING AND DEBT"
Matthew Graham  :  "Here are the comments of someone who is not being shy about justifying QE and intentional currency devaluation:"
Matthew Graham  :  "Bank of Canada comments may be the real market mover right now. Yeah, I just said that."
Matthew Graham  :  "Meanwhile, Bank of Canada is letting the cat out of the bag on its QE intentions, and talking in "currency war" language to boot."