MBS OPEN: Early Action Indicates Higher Rates

By: •

Welcome to July....

July in terms of Class A MBS coupons. We have indeed rolled forward delivery months and are now watching July settlement.  Dont panic if you are seeing an unexpected amount of RED on the board today....this is a function of the DROP which occurs when coupons roll forward to the next month's settlement date (bc of the TIME VALUE OF MONEY...read more HERE)

That said...not all the RED you are seeing is a factor of  the roll...bids are lower this morning. Overnight some comments coming out of Russia indicating their central bank would reduce investments in US bonds in favor of IMF issued debt securities due to the possibility that the US dollar may eventually lose its status as the world's reserve currency (ugh...anyone read Revelations?). Consequently the dollar is weaker and the 10 yr note yield is a few bps higher....since the yield curve is our directional guidance giver...MBS prices are lower and mortgage rates will tick a few bps higher this morning......boohisss.

Since 5 pm "Going Out" Marks....

FN30________________________________

FN 4.0 -------->>>> -0-12   to    93-21  from  94-00

FN 4.5 -------->>>> -0-12   to   96-27   from  97-07

FN 5.0 -------->>>> -0-10   to   99-23   from 100-01

FN 5.5 -------->>>> -0-06   to 101-26   from 102-00

FN 6.0 -------->>>> -0-03   to 103-25   from 103-28

GN30________________________________ 

GN 4.0 -------->>>> -0-19   to   93-12   from   93-31

GN 4.5 -------->>>> -0-15   to   97-00   from   97-15

GN 5.0 -------->>>> -0-10   to 100-02   from  100-12

GN 5.5 -------->>>> -0-07   to 102-00   from  102-07

GN 6.0 -------->>>> -0-15   to 103-04   from  103-19

Technical indicators on the 10 yr indicate sellers are still in control (moderated by range still...support at 3.90/92). BUT...psychologically the entire marketplace is beginning to question the percieved recovery...volume in stock markets is low and trade flows are sideways indicating investors are hesitant about adding further exuberance (funds) to equities. So, although our techs still show a bearish bias in the bond market (stochastics, MACD, retracements)...we are feeling a shift in sentiment take place around us.

Unfortunately we are still unsure about the extent to which fixed income investors will add duration (buy MBS and longer dated TSYs)...purely based on supply/demand fundamentals. We did see progress yesterday though... "rate sheet influential" MBS coupons came back to life!!! Originators were locking loans (lenders selling MBS to street), servicers were buying instead of selling (havent said that in awhile) and hedge funds, money managers, and central banks were all moving "down in coupon".  By no means is this cause for celebration...instead look at it as a stabilization. It is a good sign to see speculative bottom fishers looking to position portfolios ahead of a possible yield curve flattening event (or slow and steady curve flattening I dont care just allow the street to add duration so mortgage rates can move lower!!!).

We are still looking at the big picture though...waiting for a shift in sentiment that pushes us into a new psychological paradigm. Signs this is occuring: look for equity investors to start selling into rallies, look for the short end of the yield curve (2 yr note yields) to move lower. Look for MBS/TSY yield spreads to tighten up a few ticks. Look for talking heads to focus on housing a little more!!!

DID YOU SEE MORTGAGE APPLICATIONS THIS AM??????

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending June 5, 2009.  The Market Composite Index, a measure of mortgage loan application volume, was 611.0, a decrease of 7.2 percent on a seasonally adjusted basis from 658.7 one week earlier.  On an unadjusted basis, the Index increased 15.7 percent compared with the previous week and increased 7.6 percent compared with the same week one year earlier.

The Refinance Index decreased 11.8 percent to 2605.7 from 2953.6 the previous week and the seasonally adjusted Purchase Index increased 1.1 percent to 270.7 from 267.7 one week earlier.

 The four week moving average for the seasonally adjusted Market Index is down 8.7 percent.  The four week moving average is up 0.5 percent for the Purchase Index, while this average is down 12.2 percent for the Refinance Index.

The refinance share of mortgage activity decreased to 59.4 percent of total applications from 62.4 percent the previous week. This is the lowest the refinance share has been since November 2008. The adjustable-rate mortgage (ARM) share of activity increased to 3.4 percent from 3.0 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 5.57 percent from 5.25 percent, with points increasing to 1.09 from 1.02 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.10 percent from 4.80 percent, with points decreasing to 1.04 from 1.10 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs increased to 6.75 percent from 6.61 percent, with points decreasing to 0.10 from 0.15 (including the origination fee) for 80 percent LTV loans.

Its like the Fed never announced an MBS Purchase Program....

2s/10s: 258.77bps

6/9 EFFECTIVE FED FUNDS:   -0.03  to  0.18  from 0.21

LIBOR FIXINGS

O/N LIBOR:      -0.0050    to  0.2637   from  0.2688

1 MONTH:        -0.0006    to  0.3206   from  0.3212

3 MONTH:        -0.0087    to  0.6388   from  0.6475

6 MONTH:        -0.0375    to  1.2287   from  1.2663

1 YEAR:            -0.0425    to  1.7925   from  1.8350