MBS MID-DAY: Range-Finding Ahead of NFP

By: Matthew Graham

We expected to see some sort of consolidation of the late July bond rally this week. That's a fancy way of saying that markets would probably level-off and find a range, and maybe even trade an increasingly narrow range heading into NFP Friday. 

While the initial bounce off low yields from Monday would be the logical first part of that range-finding (setting a low point for the potential consolidation), the weakness that followed was a bit more vigorous than we might have liked.  It forced us to consider that we were simply seeing a reversal heading into August.

Thankfully, we're back in the green this morning, thus giving us the other boundary for the pre-NFP consolidation.  From here, it's far more likely that bond markets treat yesterday's weakest levels as a supportive ceiling in yields (or floor in prices).

As for today's market moving considerations, there are several in play.  The most overt consideration is the Bank of England policy announcement, which fueled an early-morning pre-market rally in Treasuries.  Actually, it was more of knee jerk where British yields led other core bond market yields lower, and then higher.  It was after they bounced lower again (before breaking above the day's previous highs) that the rest of the world got on board. 

This isn't to say that US 10's aren't capable of making their own decisions.  It's just that there isn't much by way of relevant inspiration today.  It's easier to swim with the tide of global bond market momentum, especially when doing so would help accomplish a pre-NFP consolidation in the domestic trading range. 

The spillover to MBS has been decent, but not great.  Fannie 3.5s are up just over an eighth of a point.


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
100-08 : +0-05
FNMA 3.5
103-16 : +0-05
FNMA 4.0
106-04 : +0-03
Treasuries
2 YR
0.7050 : -0.0270
10 YR
2.2380 : -0.0320
30 YR
2.9070 : -0.0350
Pricing as of 8/6/15 10:51AMEST

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Sung Kim  :  "i dont believe that is the general consensus matt, typical pre-NFP ramp this week it seems"
Matt Demorest  :  "So is general consensus that tomorrow will be a sea of red? I haven't been around these parts much this week."
Ira Selwin  :  "It's more and more of Fannie/Freddie changing their guidelines to match each other. The # of financed property change can be helpful in late October as well. Freddie doesn't specify a minimum FICO score like Fannie does right now."
Ira Selwin  :  "http://mndne.ws/1J1dAel"
Ira Selwin  :  "Sung - they changed their guides - but it won't be effective until October 26"
Sung Kim  :  "did freddie change their guidelines on rent loss insurance?"
John Tassios  :  "couple investors go to 95 LTV Frank, but only on Corresp side. Has to be high FICO and low DTI's"
Frank Hanna  :  "standard max LTV on jumbos is 90%?"
Matthew Graham  :  "RTRS- US CONTINUED CLAIMS FELL TO 2.255 MLN (CONS. 2.240 MLN) JULY 25 WEEK FROM 2.269 MLN PRIOR WEEK (PREV 2.262 MLN)"
Matthew Graham  :  "RTRS - US JOBLESS CLAIMS ROSE TO 270,000 AUG 1 WEEK (CONSENSUS 273,000) FROM 267,000 PRIOR WEEK (PREVIOUS 267,000)"
Matthew Graham  :  "JR, no, not really. They can vary quite a bit. Just another employment anecdote."
Jason Roaldson  :  "MG does that layoff info have much correlation withjobless claims coming up?"