[MBS Commentary] – MBS RECAP: Some Month-End Volatility, But Bond Markets Hold Gains

MBS RECAP: Some Month-End Volatility, But Bond Markets Hold Gains

Posted to: MBS Commentary
Thursday, May 31, 2012 4:08 PM

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MBS Live: MBS Afternoon Market Summary
In an earlier alert at 2:02pm, we postulated that the rest of the trading day may be some sort of sideways or triangular pattern of narrowing ranges ahead of tomorrow morning’s NFP, and that’s effectively all that’s happened this afternoon.  We saw a big jolt of price movement just ahead of the 3pm hour into the Treasury close (end of day and end of month), but it was purely trade-flow driven.  MBS, TSYs, The Euro, and most everything else took two steps forward, two steps back, and have been trading in decreasing amplitudes since then.  Yes, it’s all about Europe, but NFP is still super important tomorrow morning.  It can definitely move markets even if that movement is more muted due to Europe.  Remember that NFP is less about the state of the economy tomorrow and more about how it informs the upcoming FOMC Announcement.
MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

FNMA 3.5
104-32 : +0-07
FNMA 4.0
106-16 : +0-05
FNMA 4.5
107-09 : +0-02
FNMA 5.0
108-10 : -0-02
GNMA 3.5
106-23 : +0-08
GNMA 4.0
109-08 : +0-03
GNMA 4.5
109-25 : +0-01
GNMA 5.0
110-17 : -0-03
FHLMC 3.5
104-25 : +0-07
FHLMC 4.0
106-04 : +0-04
FHLMC 4.5
106-25 : +0-01
FHLMC 5.0
107-21 : +0-00
Pricing as of 4:07 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.

2:02PM  :  ALERT ISSUED: Fannie 3.5’s Regain The 105 Handle as Risk Reverses Course

Wow… The extent to which the movement of “risk” is harmoniously evident across diverse markets is impressive these days. Risk aversion ramped up into 11am with stocks, bond yields, and the Euro all falling in unison. Then, through 1pm, everything went back in the other direction (“risk-on” or “risk tolerance”), taking MBS roughly from their highs of the morning to their opening levels.

The “risk-on” bounce hit a snag around 1pm and has been progressively trending back in an MBS-friendly direction. Fannie 3.5’s regained their 105-00 handle moments ago, but currently trade at 104-31+. Fannie 3.0’s are back up to 102-14 after dipping to 102-10. All this to say that the selling trend behind the most recent alert (12:25pm) has abated for now. Too soon to bank on in this market, but we may be seeing some sort of ‘leveling-off’ ahead of tomorrow’s NFP data that progresses relatively sideways from here or perhaps in a more triangular pattern of narrowing ranges.

We’re pretty hesitant to make assumptions about that given the unknowns created by “month-end.” There could be poker-faces at trade desks that move things a bit more quickly in one direction or another into the 3pm hour.

12:25PM  :  ALERT ISSUED: MBS Fall Back To AM Levels; Negative Reprice Risk? Really?

As insulting and paradoxical as it might seem, the concept of a negative reprice might merit some discussion based on the current shape of trading in MBS. Fannie 3.5’s have fallen from 105-02 to to trade closer to their morning range between 104-27 and 104-30. Stocks are on a noticeable upswing and the Euro just shot up abruptly. 10yr yields are up around 4 bps from the lows of the morning.

It’s not out of the question that we could see a negative reprice here from an “early crowd” lender or from a lender whose initial rate sheets were aggressive. That said, a decent measure of the recent ups and downs occurred AFTER most lenders released rates, leaving current levels still within the safe zone.

Best bet is to know your lender and keep an eye on MBS. 102-14 is a good line in the sand to watch in Fannie 3.0’s (yes 3.0’s) and 104-27 would serve the same role for Fannie 3.5’s. If prices are below there and falling, reprice risk is increasing. Otherwise, you might not panic too much unless your past experiences with a particular lender lead you to believe otherwise.

Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard’s Live Chat feature, utilized by hundreds of industry professionals each day.

Matthew Graham  :  “Treasury Close, Month-End. See the quote below.”
John Paul Mulchay  :  “see below”
Oliver S. Orlicki  :  “what happened at 3?”
Matthew Graham  :  “i’d give it a few minutes and just get really angry if a lender reprices on 2 minutes of month end volatility at all-time highs”
Matthew Graham  :  “month-end, may bounce right back”
Brent Borcherding  :  NostraGrahamus
MortgageMan007  :  “why the nosedive?”
Matthew Graham  :  “”There could be poker-faces at trade desks that move things a bit more quickly in one direction or another into the 3pm hour.” few clunky handfuls of chips hitting the table ahead of 3pm close.”
John Paul Mulchay  :  “who traded?”
Adam Quinones  :  “is that an admission of guilt? If so a new trend is starting!”
Matthew Graham  :  “RTRS – SUNTRUST HAS ADJUSTED POLICIES TO ENSURE BORROWERS ARE NO LONGER HARMED BY DISCRIMINATORY PRACTICES IN CREDIT MARKETS, JUSTICE SAYS “
Andy Pada  :  “Enter David Stevens…”
Matthew Graham  :  “RTRS- JUSTICE SAYS $21-MLN SETTLEMENT COVERS 20,000 BORROWERS WHO WERE ADVERSELY AFFECTED “
Matthew Graham  :  “RTRS – SUNTRUST DISCRIMINATED AGAINST PRIME BORROWERS IN 34 STATES AND WASHINGTON, VIOLATED FAIR LENDING LAWS, JUSTICE SAYS “
Matthew Graham  :  “RTRS- U.S. JUSTICE DEPT SAYS HAS REACHED SETTLEMENT WITH SUNTRUST BANK TO COMPENSATE FOR DISCRIMINATION AGAINST AFRICAN- AMERICAN AND LATINO BORROWERS “
Matt Hodges  :  “translation: “We know notheeen” in Hogan’s Heroes language”
Matthew Graham  :  “RTRS- SPAIN’S GOVERNMENT IS NOT AWARE OF ANY STEPS BEING TAKEN BY THE IMF IN RELATION WITH SPAIN-ECON MINISTRY SOURCE “
Matthew Graham  :  “Euro rose sharply on that, then moderated back down, helped along by this: “
Matthew Graham  :  “RTRS – IMF SPOKESWOMAN, ASKED TO COMMENT ON REPORT OF CONTINGENCY PLANS FOR SPAIN, SAYS IMF ALWAYS DISCUSSING DIFFERENT SCENARIOS IN ALL ITS MEMBER COUNTRIES “
Ray J  :  REPRICE: 1:15 PM – Provident Funding Worse
john murphy  :  “ii’v been on the production mgt side since 05 but LOs loved me as an UW because i originated for so long. Every UW should rotate thru production (and vice versa)”
Brent Borcherding  :  “John, what do you like more underwriting or originating?”
john murphy  :  “when i was UW i always liked to see a statement adding “color” fr employer vs VOE. made it more relevant”
Jason Harris  :  “I am guessing management is going to give me the 80k over 12 months with a letter like you mention John….we will see….”
john murphy  :  “80K annualized appears to be the final answer and is a conservative estimate. perhaps a ststament that bonus likely to continue?”
Ted Rood  :  “In a stunning development, several Italian and Greek workers put in full 8 hour days today. More on reaction from the ECB at their weekly news conference tomorrow.”
Jason Harris  :  “I will update and let you know how it sorts….going to chug some pepto now'”
Michael Gannon  :  “continuance that the bonus will continue but not how much……I agree with you guys dont get me wrong. I could see an underwriter saying it couldnt be used at all”
Ken Crute  :  “did uw possibly mean $80 for both years? not 80k /24 months? “
Jason Harris  :  “I will get it overturned but to me the obvious answer is 12 month average of lowest year”
Matt Hodges  :  “that’s just made up, Jason”
Ken Crute  :  “concur with the gentlemen below, unless 09 was way off from 10/11 “
Jason Harris  :  “UW wants to average 80K over 24 months….freaking crazy”
Matt Hodges  :  “lessor of, unless increasing, then you average”
Jason Harris  :  “QQ guys…borrower has $170K bonus in 2010 and $80K bonus in 2011 – how would you calc bonus?”

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