MBS MORNING: Taking Leadership from Stock Lever
Remember that statement we made last week about economic data being in focus this week?
IT IS!
After a "less weaker than expected" (yeh its like that) S&P headline on home prices (READ STORY), stocks moved higher and the yield curve steepened as the 10 yr TSY note yield climbed 8 basis points to 3.58%. Consequently, as we alerted "rate sheet influential" MBS coupons weakened a few ticks price-wise. See chart on MBS ALERT.
Then at 10AM...Consumer Confidence was posted. Economists surveyed were expecting a print in the 55.0 area. Actual was 49.3. Worse than expected. At that point stocks sold off and the 10 yr TSY yield recovered a few bps. BUT THEN....at 1015 the Federal Reserve conducted a scheduled open market operation (purchased TSYs from street) and the 10 yr shed 7 of the 8 bps it lost following the "less weaker than expected" (haha) home price data. Currently the 10 yr note yield sits at 3.51%. Check out the action so far this AM...
Since the Fed's coupon pass (OMOs) activity in the TSY market has slowed down a bit. That said, barring any unexpected tapebombs, the last trading day of the quarter will likely be a slow one (flows slowdown). Look for the yield curve to pace the activity of stock markets (inverse relationship) as whatever money is working is put to good use. We watch the S&P....this morning, equity investors were testing the S&P's 200 day moving average, which failed thanks to Consumer Confidence. Here is the expected intraday range for the S&P. 928 Resistance. 910 Support.
Onto mortgage world now...ever notice how I usually wait til the end of my posts to discuss MBS? Why do you think that is?
Following the Consumer Confidence release the FN 5.0 began making its way back towards flat on the day. If TSYs keep on rallying (might be hard for 10 yr to break 3.50 given the S&P has found strong support near 910)...102-00 will still prove to be the nemisis of originators and borrowers looking for a reprice for the better from lenders. It just hasnt happend lately...
It appears the "rate sheet influential" MBS sell off was bad timing for lenders...based on what I have seen this morning rate sheets lost a chunk of YSP compared to yesterday. That said, since we have enjoyed a post-data stabilizing rally, there is some room for a reprice for the better if MBS prices hold, but dont get your hopes up...not much reason for lenders to go out on a limb today. That is unless you believe month end index buyers will be in the market looking to add duration to their portfolio. MBS trading flows are two way and volume is looking to be on average so it appears that real money buyers jumped on the bargain bandwagon when MBS prices hit their AM lows. That buying will likely lead to the month end buyers joining in the fun by days end. So there is hope! But we're still not too optimistic about noticeably better rates today, especially with the S&P finding support at 910. Sorry...
2s vs. 10s: 239bps