MBS CLOSE: Positioning for Profit
MBS trading activity was nothing to write home about today. Following a long awaited rates rally, mortgage bankers locked in some pipeline profits (selling forward commitments) while Treasury traders took the opportunity to capitalize off of yesterdays "flight to quality" price improvements. After everyone's wallets were stuffed, MBS went back into their own little world while TSYs traders continued to ponder the economic outlook and the sentiments of stock traders. The 10yr note traded sideways closing at 3.09% (range is 3.07% to 3.13%) and...
Since 5pm "Going Out" Marks....
FN30________________________________
FN 4.0 -------->>>> +0-05 to 100-09 from 100-04
FN 4.5 -------->>>> +0-04 to 102-01 from 101-29
FN 5.0 -------->>>> +0-03 to 103-00 from 102-29
FN 5.5 -------->>>> +0-01 to 103-24 from 103-23
FN 6.0 -------->>>> +0-01 to 104-26 from 104-25
GN30________________________________
GN 4.0 -------->>>> +0-03 to 100-08 from 100-05
GN 4.5 -------->>>> +0-04 to 102-05 from 102-01
GN 5.0 -------->>>> +0-06 to 103-24 from 103-18
GN 5.5 -------->>>> +0-00 to 104-05 from 104-05
GN 6.0 -------->>>> +0-00 to 104-23 from 104-23
In regards to your rate sheets...although MBS steadily improved most of the session not too many "reprices for the better" were reported. Usually an 8 tick increase in MBS bids warrants republishing rates. Here's a snapshot of where MBS prices were when rate sheets were published.
Lock/Float Considerations...
From Matt: Tomorrow is our traditionally worst day of the week: Friday. So if we get the normal Friday weakness, plus the normal topside momentum shift weakness, this afternoon would look like an awfully smart time to lock. Ultimately that's your GUT to FLOP, but my advice would be to stay on top of potential reprices for the better, and really evaluate how close to an ideal pricing scenario your deals currently are. Sure, many things could happen to illicit further gains in this market, but technical evidence is mounting that a "good time to lock" may be upon us. For now, no rush until cut-off's approach as we're stable and sideways over our 100-04 line. You'll probably want to wait to pull any primed triggers until we break that floor (if we break it) as this will allow more time for any lenders considering a reprice for the better to do so
From me: I remain focused on short term trading strategies as investors are once again questioning the momentum of the proposed "economic recovery" and financial markets are beginning to revert back to that "sell into the rally" mode. That said I am wary of the percetion of headline news risk...meaning the market will continue to defy logic as participants are likely to base trading positions off of rumor with the main goal being to find a quick and efficient means of bolstering balance sheets. At the moment TSY traders are looking to test their downside support...searching for a reason to stuff their pockets with even the slightest bit of profit...however, the "range" should moderate any selling as the perception of "cheapness" creates new entry points. A "rate sheet" detrimental MBS selloff would come if a "tape bomb" caused a mass exodus from longer maturity TSYs or if originators decided prices were ripe enough for more profit taking..but only if the Fed decided to take a day off. Besides those worries...MBS coupons remain insulated from the broad shifts in short term sentiment. Sideways in the range....GUTFLOP the "primed and ready"
THAT SAID...lots of data to digest tomorrow:
830 CPI
830 Empire State Manufacturing
900 TIC Flows
915 Industrial Production/Capacity Utilization
955 Michigan Consumer Sentiment
Its all about perception and positioning for profits....range trade range trade range trade RING THE REGISTER. Sell into the rally...buy on weakness
PS...if rates sell and MBS move lower lenders have some cushion to pad the plunge...that is if lenders have a heart/need to fill their buckets (doubt it this early in trading month)