MBS MID-DAY: Following European Bond Markets Back Toward Lower Rates

By: Matthew Graham

Yesterday marked the first legitimate swoon in US bond markets in more than a week.  The 3 days prior were especially flat, with 10yr yields ending the day at 2.021, 2.023, and 2.028.  That's an uncommonly narrow range of closing levels, signalling that markets were/are waiting for "something."

Although much of our discussion has focused on next week's FOMC meeting at that probable "something," yesterday's trading suggested that this week's ECB meeting could in fact be a nearer-term something.  Reason being: European bond markets clearly led the pace of the weakness yesterday with US bond markets only seeing a fraction of the European losses.  Today's European session saw a reversal of that same trade, making for a stronger open in MBS and Treasuries and helping facilitate morning gains.  By the time we look at a chart of October's post-NFP time frame, the European thesis is all but gospel.

It's tempting to bring equities markets into the picture and say that this morning's rallies in bonds coincide with stock losses, even though we're not seeing much of a response in the bigger picture.  Even in the smaller picture, the correlations have been hit and miss (for instance, in the past few minutes, the S&P has fallen 15 points and Treasuries/MBS have barely blinked), but it should count for something that stock prices just hit the week's lows at the same time bond prices are hitting the week's highs.


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
101-21 : +0-07
FNMA 3.5
104-17 : +0-06
FNMA 4.0
106-24 : +0-04
Treasuries
2 YR
0.6210 : -0.0120
10 YR
2.0250 : -0.0440
30 YR
2.8690 : -0.0440
Pricing as of 10/21/15 1:39PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:57AM  :  Bonds Earn Back Some Losses--Largely Following Europe

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Compliance is Watching Me  :  "subjective underwriting can be a potential fair lending issue...I have no issue pointing that out to my underwriters"
Andy Pada, Jr.  :  "i think we can agree that we want intelligent qualified uw'ers"
Hugh W. Page  :  "Sure, it's their job to find faults but there's a difference between finding faults and manufacturing faults."
Andy Pada, Jr.  :  "i actually appreciate the underwriter who is looking for the loan faults"
Hugh W. Page  :  "Some underwriters are in this business to find a way to deny a loan. Most, thankfully, are not and realize that by making more loans they help their own job stability. "
Jason Anker  :  "always been that way in my world HP"
Hugh W. Page  :  "Stability of income is what's important. S/E to Salaried Job = more stability doesn't it?"
Jason Anker  :  "that UW is way off"
Dan Clifton  :  "don't get me wrong, if it were my client I would ensure from the borrower he is not going back to being SE and make as strong a case as I can (signed LOW< close the business, WVOE, etc's, but I also don't think the u/w is out of line asking for more than 2 months history on new job. 1 year may be a bit much though"
Dan Clifton  :  "JPM, correct, it is subjective. But the new 4001 does require for the u/w to cerify/verify stability. so it sounds like the u/w is taking the stance that this guy has been S/E for years, is losing money, and has taken a job just so he can qualify for the loan and is thinking once loan closes he will go back to being SE. Which is why she is asking for more than 2 months of history on the new job "
John Paul Mulchay  :  "Salary, WVOE, offer letter, and paystubs would indicate stability going forward. "
John Paul Mulchay  :  "Hey DC. 4001 doesn't define or provide parameters for income stability. That appears to be subjective. "
Dan Clifton  :  "JPM, I know this convo was last night so you might not see this, but I recall seeing in the new 4001 that u/w have to consider income stability"