MBS CLOSE: lllustrating "Par-nertia"
Volume was light and trading was slow to start the week.....AGAIN!!! Price action nonetheless created a little mid-morning drama followed by some early afternoon "reprices for the worse". YSP bummer...but you did some GUTFLOPPING last week right? Dont forget to take your profits before someone else beats you to it!!!
Since 5pm "Going Out" Marks....
FN30________________________________
FN 4.0 -------->>>> -0-08 to 99-28 from 100-04
FN 4.5 -------->>>> -0-07 to 101-22 from 101-29
FN 5.0 -------->>>> -0-04 to 102-24 from 102-28
FN 5.5 -------->>>> -0-03 to 103-18 from 103-21
FN 6.0 -------->>>> +0-01 to 104-23 from 104-24
GN30________________________________
GN 4.0 -------->>>> -0-12 to 99-24 from 100-04
GN 4.5 -------->>>> -0-09 to 101-24 from 102-01
GN 5.0 -------->>>> -0-07 to 103-16 from 103-23
GN 5.5 -------->>>> -0-02 to 104-03 from 104-01
GN 6.0 -------->>>> -0-01 to 104-21 from 104-20
UST10YR: 3.23%
2s/10s: 232.26 bps
Early in the session,
fixed income weakness was subdued by the purchasing powers of the Federal
Reserve (weaker buying than I had expected...disappointing really). Mortgage bankers were out dumping their supply of loans as TSYs started to sell more aggressively....all
in all about $2bn in new MBS was the median total "supply dump" reported by the street. This is in the high side of the average amount of supply reported recently...not to worry MBS demand
remains strong and stable...artificial (Fed) or authentic (non Fed) market
players alike.It is however a concern that mortgage banker production has tapered off over the past few weeks. We are hoping there are still more borrowers out there to be refinanced...are you a fence sitter still?
The TSY/MBS market is posturing and positioning ahead of another announcement of an expected $100bn or more Treasury debt. On Thursday, Treasury Direct will let us know how much 2s/5s/7s will be auctioned off next week. The "Refi Boom", formerly known as "it that shall not be named", has yet to officially come and most non-Fed fed accounts are continuing to enjoying juicy yield spreads by meddling "up in coupon" (FN 6.5s and 7.0s)....those coupon clips are the ones believed to be most affected by shorter maturing TSY notes like the 2 and 5 yr notes. Others...like the coupons you watch and read about on a daily basis, the 4.0s and 4.5s, have a much longer life as any borrower holding a mortgage note costing 4.50% is unlikely to be refinancing anytime soon....those MBS coupons are more likely to be compared to longer dated TSY notes like the 7 yr and 10 yr. (I use 5/10 blend for spread analysis). Either way the gyrations of the yield curve, before and after the announcement, will provide mortgages directional guidance.
I remain focused on short term trading strategies as investors
are still questioning the momentum of the proposed "economic
recovery" while balancing suppy/demand fundamentals. Financial markets have reverted back to a "sell into
the rally" mentality. That said I am wary of any perceived headline news risk...meaning the market will
continue to defy logic as participants are basing trading positions off
of rumor with the main intent being to obtain a quick and efficient means of bolstering
balance sheets. This is all occurring while "the herd"
of risk averse/fast money market participants tighten entry and exit points across the yield curve (more action in bills than notes and the long bond). Not to mention spread buyers have been venturing further down the fixed income supply chain....last week I was monitoring corporate debt spreads and well....even after a busy week of new offerings...corporate debt is still in demand.
At the moment TSY traders are testing topside resistance levels...still looking for any reason to stuff their pockets...but that familiar "range" should moderate any selling as the perception of "cheapness" creates new entry points. Here's where the 10yr note stands relative to its past performance...
MBS coupons remain insulated from the broad shifts in short term sentiment. Sideways in the range....long term 99-19 support, long term 100-15 resistance. Short term....par remains the fulcrum that MBS prices seesaw back and forth upon....
FN 4.0: Timeline from April 29 to May 18.
PAR-NERTIA....never too far from 100-00
Tomorrow...
830am Housing Starts. Expecting 520,000ish