MBS RECAP: Longer Maturities Suffer Under Weight of Supply

By: Matthew Graham

Even as stock markets have only managed to recover half of their losses from yesterday, longer-maturity Treasuries have nearly retraced the entire move.  In other words, yields are closer to yesterday's higher than stocks are to their highs (which were seen in futures markets in the morning before the 930am NYSE open).  In OTHER other words, bonds are underperforming.

The reason is fairly intuitive: supply.  A lot of debt has hit the market this week in addition to the already-scheduled debt from Treasury auctions.  Getting through the auction cycle was little consolation, thus reinforcing the damage done by corporate debt issuance this week.

The silver lining is that MBS are much less affected by the corporate bond glut.  Fannie 3.5s managed a scant eighth of a point of weakness today compared to 10yr Treasuries which lost a quarter point (in price).  In terms of rates, 10yr yields increased 0.03% while the extrapolated 'effective rate' in MBS markets rose only 0.01-0.02%. 

Despite the weakness, both bonds continue sending the same message as stocks (and everything else for that matter): markets are quickly taking their seats for next week's big show (Fed Announcement).  For bonds, this means an increasingly narrow range at slightly weaker levels.


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
100-17 : -0-05
FNMA 3.5
103-24 : -0-04
FNMA 4.0
106-13 : -0-03
Treasuries
2 YR
0.7370 : -0.0040
10 YR
2.2240 : +0.0290
30 YR
2.9860 : +0.0320
Pricing as of 9/10/15 5:03PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:40PM  :  ALERT ISSUED: Negative Reprice Risk Increasing as Bonds Hit Weakest Levels
12:02PM  :  ALERT ISSUED: Negative Reprice Risk Considerations
9:49AM  :  More Stock-Lever Connection Today, but Supply Still a Concern

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Carver  :  "this one is a loss obviously"
Matthew Carver  :  "a couple wins and a couple losses fro LOs on all those new rules..."
Ted Rood  :  "correct, for case numbers after 9/14"
Matthew Carver  :  "New FHA guideline:Student loans in deferment for 12 months after loan closing will now be included in DTI. "
Ted Rood  :  "I'm told we'll take printout from the servicer since it shows the projected payments."
Matthew Carver  :  "OO, is that in the new rules as of 9/15? or the old one?"
Oliver Orlicki  :  "Unless the payment is more than a year from the date of the note, they will use 2% or the fully amortizing payment"
Clayton Sandy  :  "How does FHA look at IBR student loans?"