MBS RECAP: Bonds Continue Pre-FOMC Consolidation With Modest Weakness

By: Matthew Graham •

The fun thing about FOMC Minutes releases is that we can never be sure if they're going to cause drama for rates until we see how markets react.  Whether or not that happens, rates have been trading a classic low-volume consolidation pattern leading up to the day itself.  Every bit of trading for the past 4 sessions has taken place within the range established on Tuesday and Wednesday of last week.

Today's trading never really came close to testing the boundaries of that range.  That's a good thing considering rates were heading higher during the the two instances of more active trading.  The first followed this morning's Housing Starts data.  Although Building Permits were weaker than expected, investors were able to overlook the implications due to the typically large month-to-month changes in multi-family permitting.  Single-Fam permits were decent enough and Housing Starts themselves, rose to the best levels since late 2007.

The second bout of selling arrived in the afternoon and can only be chalked up to positional considerations ahead of tomorrow's FOMC.  That means that the traders who had bet on rates falling at some point within the past month (or even the previous few hours) were booking their profits and getting back to more neutral positions ahead of the potentially big day.

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
100-09 : -0-01
FNMA 3.5
103-15 : -0-01
FNMA 4.0
106-03 : -0-01
Treasuries
2 YR
0.7220 : +0.0120
10 YR
2.1930 : +0.0230
30 YR
2.8560 : +0.0360
Pricing as of 8/18/15 5:33PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:48PM  :  ALERT ISSUED: Very Slight Negative Reprice Risk for Very Few Lenders
8:52AM  :  Bond Markets Weaker After Highest Housing Starts Since 2007
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Sung Kim  :  "Damn that new handbook "
Michael Baker  :  "New HUD single family handbook defines 100mi as requirement."
B C  :  "even if other FHA home has been an Inv for years?"
Jason Anker  :  "HUD HOC told me 35 miles too close"
B C  :  "can you prove rental income for last 2 years and she had a new residence?"
Mike Drews  :  "scenario for you...girl takes out FHA loan and lives there for 8 years....meets boy..moves in with boy and rents out house...2 years later relationship goes south...wants new FHA loan...Still has the FHA loan on house that is 20 miles away..Can she get a 2nd FHA loan?...we can't really document relo/family size increase/ or divorce."
Matthew Graham  :  "Could be any number of things. Could be as simple as a few big trades that "stopped-out" other positions (i.e. price movement forcing intraday long positions to cover/sell). Could be European close and tradeflows simply shifting. Could be some strategic thing with respect to tomorrow."
Sung Kim  :  "Set up for tomorrow too maybe?"
Matthew Graham  :  "no cause (nothing overt or satisfying). 2pm is an active time of day for day-traders. In an illiquid/low-volume environment, it can cause more apparent movement. No new fundamentals though. "
Oliver Orlicki  :  "What is the cause of this move down?"
Jeremy Bittner  :  "so tomorrow is a big day once again?"
Matthew Graham  :  "The Fed has a couple hundred words to put in the official policy statement. They have considerably more words to document their decision making process via the Minutes. That additional level of detail is often where market participants see (or THINK they see) the biggest clues as to what the Fed will do next. So naturally, it can be a huge market mover in that regard, but unsurprisingly, can also be a dud if markets have done a good job of getting inside the Fed's head."
Matthew Graham  :  "FOMC Minutes releases have been some of the biggest surprise market movers in the history of bond markets"
Jeremy Bittner  :  "so tomorrow means nothing?"
Matthew Graham  :  "(i.e. a more detailed account of the conversation that took place in the late July Fed meeting)."
Matt Hodges  :  "only minutes being released"
Jeremy Bittner  :  "Fed's raising rates tomorrow?"