MBS RECAP: Widespread Negative Reprices as Bonds End Month Weaker

By: Matthew Graham

Treasuries went out the 'in' door for the month of August, with today's 3pm levels matching the opening levels from August 3rd (1st trading day of the month).  MBS briefly traded near their August 3rd levels, but ended in noticeably weaker shape (MBS have been slowly but steadily underperforming Treasuries since QE3).  By the end of the day, most lenders had repriced at least once.

Data was inconsequential this morning, as was most everything else for bond markets apart from month-end tradeflows.  That was a benefit at first, but a significant detractor by the end of the European session, and then again at the end of the domestic session.  Those were the time frames (11am-noon, and 2-3pm) where we saw the big pushes of selling pressure.

Why selling on month-end, you ask?  After all, isn't month-end a time when bond market participants are having to do extra buying in order to balance portfolios?  First of all, month-end trading activity can be buying or selling, depending on how traders are positioned heading into it.  More importantly, not all accounts are part of the world where month-end is a big deal.  In other words, it's only ever a certain contingent of traders that are compelled to adjust portfolios by the end of the month.  Other traders are more nimble, and they may have been buyers in the morning only to become sellers in the afternoon.  The big rise in oil prices only reinforced that case (because it anchors inflation expectations, and suggests decreased central bank accommodation, in general).


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
100-13 : -0-07
FNMA 3.5
103-18 : -0-06
FNMA 4.0
106-06 : -0-04
Treasuries
2 YR
0.7390 : +0.0150
10 YR
2.2140 : +0.0298
30 YR
2.9600 : +0.0497
Pricing as of 8/31/15 5:20PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:40PM  :  ALERT ISSUED: Widespread Reprices Now Likely
2:03PM  :  ALERT ISSUED: Negative Reprice Risk Lingers
11:13AM  :  ALERT ISSUED: Aggressive Selling in German Bonds Spilling Over; Some Negative Reprice Risk
10:35AM  :  Holding Decent Gains in "Month-End" Environment

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Hugh W. Page  :  "So, how about that 20% increase in Oil prices over the week? Are Oil prices about to start getting volatile on us now?"
Ted Rood  :  "Feedback from Freddie on the "6 months reserves required": Thank you for writing. We weren’t very clear and have since reposted the piece with a clarification. The requirement that a borrower be able to make six months of mortgage payments is applicable only for 2-4 unit single-family properties. For a one-unit single-family primary residence, the requirement remains zero months of savings."
Matthew Graham  :  "tough one. We seem to be heavily dependent on data this week, with NFP being the exclamation point. It could go either way."
Jayson Hardie  :  "Lock or float? family member purchasing about 30 days out"