FHFA Announces Another 10 Basis Point Increase In G-Fees

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Aug 31, 2012 11:23AM

FHFA Announces Another 10 Basis Point Increase In G-Fees

Fannie Mae and Freddie Mac’s guarantee fees (g-fees) on single-family mortgages are about to go up by an average of 10 basis points. The increase was announced by the Federal Housing Finance Agency (FHFA) this morning and will take effect for loans sold for cash on November 1 and for loans exchanged for mortgage-backed securities (MBS) one month later. FHFA said the change to the g-fee pricing is intended to encourage greater participation in the mortgage market by private firms, a goal set in the…

Aug 31, 2012 4:36PM

MBS RECAP: Rallied and Rallied Some More Following Bernanke, Month-End Buying

We’ve discussed month-end buying in various contexts in the past and one of them is to fill portfolio positions for investment funds that must be balanced with various indexes. In other words, buyers were forced in earlier in order to get to their required

Micro News

3:24 PM:

More Month-End Buying Lined Up After The Treasury Close

12:37 PM:

Spain creates bad bank, paves way for rescue funds

12:19 PM:

Gains Holding Following Bernanke Speech, Volatility Brought Buyers

10:23 AM:

FHFA Announces Another 10bp Increase In G-Fees

10:20 AM:

Full Text Of Bernanke’s Jackson Hole Speech

10:17 AM:

Bond Markets Choppy Following Bernanke’s Prepared Remarks

9:51 AM:

ECON: Chicago PMI Slightly Lower, But Employment Component Stronger

9:16 AM:

Bond Markets Open Weaker, Battling Back To Nearly Unchanged Levels

Around the Web

Video News

Economists Disagree on Bernanke’s Policies

PIMCO CEO: Bernanke Setting Up for ‘More Activism’

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Today’s Q&A

“Poll: How do you feel about mobile advertising?:)”

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Today’s Forum Discussions

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[Mortgage Rate Watch] – Mortgage Rates Move Slightly Lower Ahead Of Three Day Weekend

Mortgage Rates Move Slightly Lower Ahead Of Three Day Weekend

Posted to: Mortgage Rate Watch
Friday, August 31, 2012 3:44 PM

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Mortgage rates moved slightly lower today reaching their best levels since early in the month after a speech from Fed President Bernanke in Jackson Hole.  We’d note, however, that the improvements in rates weren’t a result of anything in the speech per se.  Rather, the speech represented an unknown for markets–one which they were waiting on before making their next move. 

After it became clear that there were no surprises from Bernanke, bond market investors steadily bought lots of Treasuries and MBS (The Mortgage-Backed-Securities that most directly influence mortgage rates) filling required trading positions to close out the month of August.  Unfortunately, the improvements in bond markets didn’t arrive early enough in the day to be of benefit to mortgage rates as much as they otherwise might have been.  Rates improved, but only moderately so, leaving Best-Execution for 30yr Fixed Conventional loans at 3.5% with the same isolated instances of 3.375% that we’ve seen on some of the better days of late.

(Read More:What is A Best-Execution Mortgage Rate?)

It continues to be the case that, in terms of market events, today’s speech from Bernanke was small potatoes compared to what lies ahead in the first two weeks of September.  It could be the case that bond markets perform naturally weaker on Tuesday without the strong supportive presence of “month-end.”  However, that consideration is balanced out somewhat by the fact that the underlying markets improved today to a greater extent than rate sheets themselves.  All in all, the recent theme of being in a sideways holding pattern ahead of the big-ticket events of early September continues to play out.

 

Long Term Guidance: We’d continue to advocate against trying to “get ahead” of current market movements due to the high degree of uncertainty.  The long-term direction of rates has been down, down, down, for the past year.  At some point, this will turn, and when it does, we highly recommend that you’re prepared by drawing your OWN line in the sand as to how much rates would have to rise before you lock at a lost.  That’s assuming you don’t simply lock as soon as you’re able.  For those with lower levels of risk tolerance who would consider movements in cost (despite unchanged interest rates) to be significant, or for those within 15 days of closing, or who are purchasing, this certainly favors locking.  We’d also consider that rates remain very close to all-time lows and uncertainty to all-time highs.  This also favors locking.

Loan Originator Perspectives

Julian Hebron, Branch Manager, Loan Agent, RPM Mortgage

Rates should be lower today given the day’s MBS gains. We’re still holding out for some rate improvements here on the West Coast then will continue this week’s locking theme I’ve been discussing all week. That said, many borrowers are unavailable due to holiday travel and it looks like next week will start mildly in the U.S. and Eurozone sentiment is rather dark right now (good for rates). So floating rates into Tuesday looks reasonably safe.

Today’s BEST-EXECUTION Rates 

  • 30YR FIXED –  3.5%
  • FHA/VA – 3.5% (varies more between lenders than conventional 30yr Fixed)
  • 15 YEAR FIXED –  2.875-3.00%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations 

  • Rates and costs continue to operate near all time best levels
  • Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
  • But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn’t always mean they’re done improving.
  • (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

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[MBS Commentary] – MBS RECAP: Rallied and Rallied Some More Following Bernanke, Month-End Buying

MBS RECAP: Rallied and Rallied Some More Following Bernanke, Month-End Buying

Posted to: MBS Commentary
Friday, August 31, 2012 4:06 PM

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MBS Live: MBS Afternoon Market Summary
Today’s tricky because the obvious focus had been Bernanke’s Jackson Hole speech.  So seeing a substantial rally and break away from the recently sideways trend, the logical conclusion would be that the rally must have been driven by the day’s big event.  In a way, that’s true, but it’s not because of anything Ben said that increased optimism in bond markets.  Rather, he simply moved completely out of the way and REMOVED what had been somewhat of a big consideration for markets so they could, in turn, do their thing.  “Their thing,” as it happened to be today, was to load up on Treasuries and MBS for month-end portfolio allocations and it now seems that many of them were waiting until after Bernanke to do so.  This was likely to be the case when we were rallying mid-day, but then certainly became the case as we continued to rally after the Treasury close at 3pm.  The after hours buying signals even more buckets needed filling from the mid to long end of the yield curve.  The last alert of the day discusses risks in assuming that such a rally continues on Tuesday, but we’d also balance that against the fact that lenders generally didn’t improve rate sheets to the extent suggested by MBS gains.  In that sense, we could lose a small amount of ground in MBS over the weekend and still not be looking at much of a change on Tuesday.
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
106-01 : +0-13
FNMA 4.0
107-07 : +0-09
FNMA 4.5
108-07 : +0-05
FNMA 5.0
109-07 : +0-04
GNMA 3.5
108-08 : +0-16
GNMA 4.0
109-22 : +0-11
GNMA 4.5
109-24 : +0-06
GNMA 5.0
110-18 : +0-02
FHLMC 3.5
105-27 : +0-14
FHLMC 4.0
106-31 : +0-10
FHLMC 4.5
107-20 : +0-06
FHLMC 5.0
108-14 : +0-05
Pricing as of 4:04 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.

3:24PM  :  ALERT ISSUED: More Month-End Buying Lined Up After The Treasury Close

We’ve discussed month-end buying in various contexts in the past and one of them is to fill portfolio positions for investment funds that must be balanced with various indexes. In other words, buyers were forced in earlier in order to get to their required fund allocations before month end. Even when that appears to be the case, it can turn out to be tactical trading that ends up reversing course by the 3pm Treasury close. Different story today as it was all real need-based buying. With just under 2 more hours left to fill last-minute index-filling trades, everyone’s cards are being turned face-up, and all of them are “buy.”

MBS takes part in this to a good extent and this is where a supply/demand imbalance really shines and helps MBS keep up with the Treasury rally much better than they otherwise would be able to, even though the rally is primarily a function of month-end buying in Treasuries.

Couple conclusions:
First, apparently more than a few accounts saved their month-end house-keeping until after Jackson Hole. We can accept that and indeed, it’s one of the reasons we saw today as the first major opportunity to break out of the mostly sideways range since last Thursday. Second, we’re running into new, stronger resistance targets here and next week is no longer month-end (obviously). When that temporary demand exits, what’s left? Perhaps seeking out the next equilibrium ahead of the week’s key events with the ECB and NFP?

It all goes back to the “lead-off” analogy. This one has gotten convincing. The runner is either going to have to commit to moving to the next base or hope for a base-hit. We’re cautious about Tuesday for these reasons. Base-hits can’t come until the big-ticket events actually start happening. As far as our little base-runner having the resolve to continue in spite of that and in the absence of today’s month-end support, it FEELS like a tall order. Not sure if that just means we’ll pause sideways or bounce back lower, but the POSSIBILITY that today’s momentum isn’t guaranteed is worth considering at least.

For now, additional reprices for the better are a fair expectation, depending on the lender. Sadly, we may not see as many as we otherwise would considering the lateness in the day and the 3-day weekend ahead.

12:37PM  :  Spain creates bad bank, paves way for rescue funds

(Reuters) – Spain overhauled its banks for the fifth time in three years on Friday to secure up to 100 billion euros ($125 billion) in European aid for lenders crushed by bad loans from an extended property market crash.

The government created a so-called bad bank to take over tens of billions of euros in defaulted loans and unsaleable property and to accelerate the clean-up of the banking sector, Economy Minister Luis de Guindos said.

Spain’s banks are at the heart of the euro zone debt crisis, but the rescue has not cleared up doubts over the country’s finances and the government is now under pressure to ask for a full sovereign bailout like Greece or Portugal.

12:19PM  :  ALERT ISSUED: Gains Holding Following Bernanke Speech, Volatility Brought Buyers

Month-end retail buyers took the opportunity to buy the first major dips during the post-Jackson Hole volatility, and again bought on next dip just after 11am. That support helped MBS and Treasuries to their best levels since early August as the sideways grind sees a minor break in bond-market’s favor.

After holding gains, headlines are helping bond markets eke out additional positivity after Spain’s Bankia reported a €4.448 bln loss, further reinforcing the challenges facing Spain and the likelihood that Bankia will make use of emergency liquidity that is already set aside. Previously, Bankia said it would wait until new stress tests came out at the end of September before tapping the liquidity offer.

Stocks shot just over 5 points lower in S&Ps and 10yr yields dipped into the 1.57’s. Fannie 3.0 MBS are up 11 ticks on the day now to 103-20. We’ve already seen a few positive reprices on the day, but recent gains make additional reprices an ongoing possibility.

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.

LSP  :  REPRICE: 3:44 PM – Chase Better
LSP  :  “Great baseball analogy in the MBS alert. Those on the fence about locking should take a look. Don’t get stuck on third base when you could have stolen home.”
Matt Hodges  :  “never wrong to lock when you should have floated; it beats the alternative, TB”
Bromi Krock  :  “TB if the deal works and the client is happy then why wait.”
Matthew Graham  :  “depending on the lender, I’d try to wait for as many of those things that LSP just posted as possible tho”
LSP  :  REPRICE: 3:32 PM – PennyMac Better
Curt Sandfort  :  “check the econ calendar tab also”
LSP  :  REPRICE: 3:32 PM – USBank Better
Matthew Graham  :  “so no, not total moron. “
Matthew Graham  :  “I’d be more predisposed to lock this afternoon than I would have been if we sold off today.”
Tom Bartlett  :  “Hi MG..Am I a total Moron if I lock 3 loans right now before the long w/e? I know they are hedging and not giving as much as they should. Any major econ numbers before tuesday ratesheets arrive?”
Raul Lopez  :  REPRICE: 1:29 PM – Sun West Mortgage Better
Jason York  :  REPRICE: 1:23 PM – Plaza Better
David Zilkha  :  “Retail”
Ira Selwin  :  “As a heads up that 2nd Chase re-price is not Correspondent.”
David Zilkha  :  REPRICE: 1:18 PM – Chase Better
Andy Pada  :  “I’m locking a few more today.”
Victor Burek  :  “no way i would lock today, unless got a huge reprice better”
Scott Rieke  :  “Tuesday could be fun – do you lock now? There will be vol, just not sure which way”
Blair  :  “106 to end the week would be nice”
LSP  :  “That was quick. Thought they’d be in siesta mode.”
LSP  :  REPRICE: 12:26 PM – Wells Fargo Better
Matthew Graham  :  “RTRS – SPAIN’S FROB SAYS CAPITAL INJECTION IN BANKIA BKIA.MC IS ADVANCE ON EUROPEAN AID FOR THE BANK “
Matthew Graham  :  “well that was fast: RTRS – SPANISH FROB SAYS TO INJECT CAPITAL IN BANKIA BKIA.MC IMMEDIATELY “
Matt Hodges  :  “very good news for us”
Matthew Graham  :  “2 days ago: (Reuters) – Nationalised lender Bankia BKIA.MC is expected to post first-half losses of more than 4 billion euros on Friday, highlighting the need for capital from a European rescue of Spanish banks that is unlikely to arrive before the end of September.”
Matthew Graham  :  “RTRS- SPAIN’S BANKIA BKIA.MC REPORTS H1 NET LOSS 4.448 BLN EUROS “
Matthew Graham  :  “just a bit of background likely informing the S&P downgrade”
Matthew Graham  :  “earlier this week: Aug 28 (Reuters) – Spain’s north-eastern region of Catalonia will tap a state facility credit line for just over 5 billion euros ($6.26 billion), which will cover its financing costs and maturing debt this year, a spokeswoman for the region’s government said on Tuesday.”
Jerry T  :  “Spanish 10-yr yields just shot up…nearing 6.9% now”
Matthew Graham  :  “RTRS- S&P DOWNGRADES SPAIN’S CATALONIA REGION TO ‘BB/B’; OUTLOOK NEG “
Andy Pada  :  “A big thank you to MG and MBS Live Crew for getting us through the early August bump in the road”
Rob Clark  :  REPRICE: 11:38 AM – Provident Funding Better

Read what our user’s have to say about MBS Live on LinkedIn.
» Start a two week free trial of MBS Live.

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[MND NewsWire] – Fannie Mae’s Portfolio down 9.9 Percent in July

Fannie Mae’s Portfolio down 9.9 Percent in July

Posted to: MND NewsWire
Friday, August 31, 2012 9:40 AM

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Fannie Mae reduced its Gross Mortgage Portfolio by $5.86 billion during July to $667 billion and is reducing that portfolio at a compound annualized rate of 9.9 percent compared to 10.2 percent for the entirety of 2011.  The portfolio stood at $708.4 billion on December 31, 2011.

The Gross Mortgage Portfolio contains $386.36 billion in mortgage loans, $13.71 billion in Non-Fannie Mae Agency Mortgage Securities and $69.26 billion in Non-Fannie Mae Non-Agency Mortgage Securities.

The Department of the Treasury revised its Preferred Stock Purchase Agreement (PSPA) with both Fannie Mae and Freddie Mac earlier this month and, among the changes, ramped up the pace at which the two government-sponsored enterprises (GSEs) must liquidate their portfolio.  Under the original agreement the portfolios were mandated to be reduced at an annual rate of 10 percent, reaching a target value of $250 billion by 2022; the new requirement is a 15 percent annual reduction with a new target date of 2018.

Fannie Mae’s book of business increased at a compound annualized rate of 1.5 percent in July to $3.20 trillion compared to $3.18 trillion in June.  In addition to the gross mortgage portfolio this includes Total MBS and other guarantees of $2.72 trillion and MBS in Portfolio of $199.66 billion and reflects $77.1 billion in new business acquisitions during the month.

The total delinquency rate in the conventional single family portfolio was 3.50 percent compared to 3.53 percent in June and 4.08 percent in July, 2011.  The rate among non-credit enhanced loans was 2.84 percent compared to 2.86 percent in June and 3.14 percent a year earlier.  Among credit enhanced loans the rate was 7.76 percent, down from 7.86 percent month-over-month and 9.69 percent year-over-year.  The delinquency rate in the Multi-Family Portfolio was 0.26 percent, a drop of 3 basis points from June and 19 basis points from July, 2011.

The Effective Duration Gap on Fannie Mae’s portfolio averaged zero months in July, unchanged from the previous 12 months.

During the month of July Fannie Mae completed 11,410 loan modifications bringing the total for 2012 to date to 93,413 modified loans.

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[MND NewsWire] – FHFA Announces Another 10 Basis Point Increase In G-Fees

FHFA Announces Another 10 Basis Point Increase In G-Fees

Posted to: MND NewsWire
Friday, August 31, 2012 11:02 AM

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Fannie Mae and Freddie Mac’s guarantee fees (g-fees) on single-family mortgages are about to go up by an average of 10 basis points.  The increase was announced by the Federal Housing Finance Agency (FHFA) this morning and will take effect for loans sold for cash on November 1 and for loans exchanged for mortgage-backed securities (MBS) one month later.   

FHFA said the change to the g-fee pricing is intended to encourage greater participation in the mortgage market by private firms, a goal set in the agency’s Strategic Plan for Enterprise Conservatorships.  The two government-sponsored enterprises (GSEs) said they will work directly with lenders to implement the changes.

Acting FHFA Director Edward J. DeMarco said “These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit risk was borne solely by private capital.”

FHFA, conservator of the GSEs said the hike will increase uniformity of the g-fees charged to lenders to deliver large volumes of loans and those who deliver smaller volumes.  It will also reduce cross-subsidies between higher-risk and lower-risk mortgages by increasing g-fees on loans with maturities longer than 15 learns more than on shorter term notes.

FHFA also released its fourth annual report on single-family guarantee fees.  The report, covering the years 2010 and 2011, found that the average g-fee charged by the GSEs increased from 26 basis points in 2010 to 28 basis points in 2011.  The report also found that mortgages with higher credit risk were subsidized, on average, by loans that posed a lower risk and that the majority of loans acquired by Fannie and Freddie came from a small group of large lenders.  FHFA said the new pricing structure is designed to address both issues.

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[MBS Commentary] – MBS MID-DAY: Volatility Surrounding Bernanke Speech, Followed By Improvements

MBS MID-DAY: Volatility Surrounding Bernanke Speech, Followed By Improvements

Posted to: MBS Commentary
Friday, August 31, 2012 11:05 AM

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MBS Live: MBS Morning Market Summary
After some morning weakness, bond markets were able to get back to relative flatness heading into Bernanke’s Jackson Hole speech, and pretty much ignored the morning’s other economic data.  Bond markets were choppy within a range very briefly in the immediate wake of the speech, but soon resolved to the upside, taking MBS to new highs on the week and the highest prices for Fannie 3.0s since August 6th. 10yr yields broke yesterday’s resistance floor and even briefly made it into the 1.5’s in 10yr’s.  Stocks dipped big initially and are now back to higher levels than before the speech.  So for now, it looks as if Bernanke has done the miraculous job of appeasing both sides of the market.  Either that, or both sides of the market were sidelined waiting for more disconcerting news and both are coming back in with a relief bid.  Either way, MBS up 8 ticks on the day and a few positive reprices trickling in…  We’ll take it.
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
105-23 : +0-03
FNMA 4.0
107-02 : +0-04
FNMA 4.5
108-04 : +0-02
FNMA 5.0
109-05 : +0-02
GNMA 3.5
107-30 : +0-06
GNMA 4.0
109-16 : +0-05
GNMA 4.5
109-22 : +0-03
GNMA 5.0
110-18 : +0-03
FHLMC 3.5
105-17 : +0-04
FHLMC 4.0
106-26 : +0-05
FHLMC 4.5
107-18 : +0-04
FHLMC 5.0
108-12 : +0-03
Pricing as of 11:05 AM EST
Morning 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 morning.

10:23AM  :  FHFA Announces Another 10bp Increase In G-Fees

The Federal Housing Finance Agency (FHFA) today announced that it has directed Fannie Mae and Freddie Mac to raise guarantee fees (g-fees) on single- family mortgages by an average of 10 basis points. The changes to g-fee pricing represent a step toward encouraging greater participation in the mortgage market by private firms, a goal set forth in FHFA’s Strategic Plan for Enterprise Conservatorships.

“These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit risk was borne solely by private capital,” said Edward J. DeMarco, Acting Director of FHFA.

For loans exchanged for mortgage-backed securities (MBS), the increase will be effective with settlements starting Dec. 1, 2012. For loans sold for cash, the increases will be effective with commitments starting Nov. 1, 2012. Fannie Mae and Freddie Mac will work directly with lenders to implement the changes.

10:20AM  :  Full Text Of Bernanke’s Jackson Hole Speech

As I have discussed today, it is also true that nontraditional policies are relatively more difficult to apply, at least given the present state of our knowledge. Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.

As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.

Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

Full Text:

10:17AM  :  ALERT ISSUED: Bond Markets Choppy Following Bernanke’s Prepared Remarks

Essentially echoing the previous FOMC Announcement, Bernanke noted the Fed will provide accommodation as needed and reiterated the importance making further progress on growth and jobs.

In general, Bernanke danced a delicate dance, neither unveiling or hinting at anything beyond that which was already known, but also keeping the door perfectly open to the announcement of additional easing at the upcoming FOMC meeting. Notably, Bernanke mentioned that the first two rounds of Fed asset purchases may have raised US Output by almost 3 percent and lifted employment by 2 million jobs.

Bond markets have been choppy following the release of the prepared remarks with MBS and Treasuries both briefly turning red but now back into the green. Fannie 3.0’s are up 5 ticks on the day at 103-14 and 10yr yields are down just over a bp at 1.6096.

All in all, Bernanke did a fantastic job of delivering a speech that was “as-expected” as possible. Barring any bigger swings between now and then, we’re now waiting for meaningful responses in the questions/answers session.

9:51AM  :  ECON: Chicago PMI Slightly Lower, But Employment Component Stronger

– PMI 53.0 vs 53.5 consensus
– Employment indext 57.1 vs 53.3 last time

– No significant market reaction. Tame headline balaned by stronger employment component.

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER posted a small gain in August but remained steady for the last four months. Among the Business Activity measures, declines into contraction for both Order Backlogs and Supplier Deliveries offset minor gains in Production, New Orders, and Employment in August.

BUSINESS ACTIVITY:

• EMPLOYMENT recovered more than half of last month’s slowing;

• PRICES PAID slight gain;

• ORDER BACKLOGS lowest since September 2009;

• SUPPLIER DELIVERIES lowest since July 2009. BUYING POLICY:

• PRODUCTION MATERIAL and M.R.O. SUPPLIES lead times decreased.

9:16AM  :  ALERT ISSUED: Bond Markets Open Weaker, Battling Back To Nearly Unchanged Levels

Treasuries are quickly rallying back to something closer to ‘unchanged’ levels vs yesterday after rising several bps to just under 1.66 in 10yr yields during the European session. 10’s are now back down to 1.637 and after opening slightly weaker Fannie 3.0 MBS are 1 tick into the green at 103-10.

Volume took a step back from recent sessions overnight, despite a fairly robust offering of data and headlines as markets are ostensibly circling the wagons ahead of Bernanke’s Jackson Hole speech. The WSJ notes that Columbia economist Michael Woodford (who has spoken at Jackson Hole before), will be there again today and is likely to discuss the topic of a recent paper citing the need for more transparent policy communication and stronger commitments.

ECB’s Coere notes the need for budget integration before Euro bonds, but also said the ECB is working on a bond-buying program according to Bloomberg. Nothing new here. Reuters notes that Bundesbank chief Jens Weidmann (key opposition of looser ECB policy) is threatening to resign both literally and figuratively in similar fashion to Axel Weber and ECB’s Stark (i.e. “we’re not getting our way, so see ya!”).

Relatively tame data out of Europe overnight, including flat inflation, unchanged unemployment, and weaker German Retail Sales, left the focus on the various headlines, and the decline in volume is our first clue that markets are waiting for Bernanke at 10am.

Before that, Chicago PMI hits at 9:45am and Consumer Sentiment at 9:55. After a mostly sideways week, today is the first good opportunity for markets to take a lead-off from the safety of that base, though no guarantee we’ll actually see that happen. Heavy hitters are yet to come in the two weeks ahead.

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.

seth palagyi  :  fhfa said avg of 10 bps gfee raise, fannie just sent email stating they’re enforcing 12 bps on >15 yr terms and 6 bps for <=15 yr terms. dec for mbs and nov for cash window”
Gaius Rossini  :  http://www.fhfa.gov/webfiles/24259/Gfee083112.pdf
Gaius Rossini  :  “*FANNIE MAE, FREDDIE MAC TO RAISE GUARANTEE FEES 10 BASIS POINTS”
Matthew Graham  :  “RTRS – BERNANKE SAYS FIRST TWO ROUNDS OF FED ASSET PURCHASES MAY HAVE RAISED U.S. OUTPUT BY ALMOST 3 PCT AND LIFTED EMPLOYMENT BY 2 MLN JOBS “
Matthew Graham  :  “RTRS- BERNANKE: UNLESS ECONOMY BEGINS TO GROW MORE QUICKLY, JOBLESS RATE LIKELY TO STAY ABOVE LEVELS CONSISTENT WITH MAXIMUM EMPLOYMENT FOR SOME TIME “
Matthew Graham  :  “RTRS- BERNANKE URGES EUROPE TO PRESS AHEAD WITH POLICY INITIATIVES TO RESOLVE CRISIS, SAYS RECENT PROPOSALS HAVE BEEN “QUITE CONSTRUCTIVE” “
Matthew Graham  :  “RTRS – BERNANKE SAYS AS FED ASSESSES POLICY, MUST NOT LOSE SIGHT OF “DAUNTING ECONOMIC CHALLENGES” CONFRONTING UNITED STATES “
Matthew Graham  :  “RTRS- BERNANKE SAYS COSTS OF NON-TRADITIONAL POLICIES APPEAR MANAGEABLE, SHOULD NOT RULE OUT FURTHER USE IF ECONOMIC CONDITIONS WARRANT “
Matthew Graham  :  “RTRS- BERNANKE SAYS, IN CONSIDERING FURTHER EASING, FED TAKING DUE ACCOUNT OF UNCERTAINTIES AND LIMITS OF ITS POLICY TOOLS “
Matthew Graham  :  “RTRS- BERNANKE SAYS FED WILL PROVIDE ADDITIONAL POLICY ACCOMMODATION AS NEEDED; IMPORTANT TO MAKE FURTHER PROGRESS ON GROWTH, JOBS “
Matthew Graham  :  “the most significant thing about this Consumer Sentiment report seems to be that it serves as a good reminder that there are only 5 minutes to go until Bernanke (2.5 min now)”
Matthew Graham  :  “THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX AT LOWEST SINCE DEC 2011 “
Matthew Graham  :  “THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX AT HIGHEST SINCE JAN 2008 “
Matthew Graham  :  “THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT INDEX FINAL AUGUST 74.3 (CONSENSUS 73.6) VS PRELIMINARY AUG 73.”
Victor Burek  :  “text for bernankes speech released at 10am?”
Matthew Graham  :  “RTRS – CHICAGO PMI EMPLOYMENT INDEX 57.1 IN AUGUST VS 53.3 IN JULY “
Matthew Graham  :  “RTRS – CHICAGO PURCHASING MANAGEMENT INDEX 53.0 IN AUGUST (CONSENSUS 53.5) VS 53.7 IN JULY “
Matthew Graham  :  “this is interesting though as it lines up with what Woodford has said in the past and might say again today: RTRS- WILLIAMS SAYS HOPEFUL FED CAN IMPROVE COMMUNICATIONS TO MORE ACCURATELY REFLECT POLICY -CNBC “
Matthew Graham  :  “RTRS- FED’S WILLIAMS SAYS WILLING TO PUSH OUT LOW-RATES GUIDANCE TO 2015 “
Matthew Graham  :  “RTRS- WILLIAMS SAYS FED SHOULD BE MOVING TOWARD ‘OPEN ENDED’ QE APPROACH “
Matthew Graham  :  “RTRS- FED’S WILLIAMS SAYS ADDITIONAL ACCOMMODATION WOULD HELP BOOST THE ECONOMY; WORRIED ABOUT STALLING “
Matthew Graham  :  “RTRS- FED’S WILLIAMS SAYS GROWTH TO STAY AROUND 2 PCT WITHOUT POLICY ACTION “
Matthew Graham  :  “RTRS – FED’S WILLIAMS SAYS QE HAS BENEFITS -CNBC “

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[MBS Commentary] – The Day Ahead: After A Sideways Week, Here’s The First Chance For A Lead-Off

The Day Ahead: After A Sideways Week, Here’s The First Chance For A Lead-Off

Posted to: MBS Commentary
Friday, August 31, 2012 8:18 AM

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The lead-off analogy is one that we’ve used many times to relate a relatively simple market phenomenon, just as the primary subject material is a relatively simple strategy in baseball.  If anyone needs a refresher, the lead-off in baseball is when a runner, who is already on base during another batter’s at-bat, begins to move away from the base they are safely on, and edge slightly toward the next base.  The goal can be to prepare to steal the next base or simply to be “that much further along” in case the ball is hit.

Today then would be the first notable opportunity for bond markets to take their own lead-off in anticipation of next week’s potentially significant events (ECB and Jobs Report).  Until now, and indeed since late last week, we’ve been expecting bond markets to not have anywhere to go, and thus be consigned to what would probably turn out to be a mostly sideways range, but perhaps with a slight bias in one direction or another.  Essentially, bond markets have been stuck “on base and waiting for the pitch.” 

And now that the sideways theme has held up so nicely, here’s the proverbial pitch.  Just like in baseball, where the pitch itself doesn’t guarantee that the ball will be hit, today’s Jackson Hole speech from Bernanke merely provides the opportunity for base hits.  Though unlikely, markets might detect a leaning toward a certain outcome in the FOMC Announcement just under 2 weeks from now.  If so, they might lead-off in the direction of that leaning, and thus, we could see the sideways theme face it’s first major test.

Even if that happens, we’d emphasize that Ben at Jackson Hole is merely a “contact hitter”–that is to say, he’s not-at-all likely to hit one out of the park and serve as the impetus for a bunch of base-running by bond markets.  As we’ve probably said too many times already this week and last, the heavier hitters will be up in the first two weeks of September.  But between Bernanke and the other economic events today, we could certainly see a convincing lead-off.

As for that other data, there’s a good amount on tap from the Euro zone overnight, including Unemployment for the entire Euro zone and several ECB speakers.  Domestically, we’ll get Chicago PMI, Consumer Sentiment, and Factory Orders all before Bernanke starts speaking (to be clear, Factory Orders and Ben share a 10am time slot, but the prepared speech isn’t quite as interesting as the discussions that follow)

 

MBS Live Econ Calendar:

Week Of Mon, Aug 27 2012 – Fri, Aug 31 2012

Time

Event

Period

Unit

Forecast

Prior

Actual

Mon, Aug 27

08:30

Midwest manufacturing

Jul

94.1

Tue, Aug 28

09:00

CaseShiller 20 mm nsa

Jun

%

1.4

2.2

09:00

CaseShiller 20 mm SA

Jun

%

0.6

0.9

09:00

CaseShiller 20 yy

Jun

%

-0.2

-0.7

10:00

Consumer confidence

Aug

66.0

65.9

10:00

Rich Fed comp. index

Aug

-17

13:00

2-Yr Note Auction

bl

35.0

Wed, Aug 29

07:00

MBA Purchase Index

w/e

177.4

07:00

Mortgage refinance index

w/e

4609.9

08:30

GDP Final

Q2

%

1.7

1.5

10:00

Pending homes index

Jul

99.3

10:00

Pending sales change mm

Jul

%

1.1

-1.4

13:00

5-Yr Treasury Auction

bl

35.0

Thu, Aug 30

08:30

Core PCE price index mm

Jul

%

0.1

0.2

08:30

Initial Jobless Claims

w/e

k

370

372

08:30

Continued jobless claims

w/e

ml

3.303

3.317

08:30

Consumption, adjusted mm

Jul

%

0.4

0.0

08:30

Personal income mm

Jul

%

0.3

0.5

11:00

KC Fed manufacturing

Aug

2

13:00

7-Yr Note Auction

bl

29.0

Fri, Aug 31

09:55

U.Mich sentiment

Aug

73.6

73.6

* mm: monthly | yy: annual | qq: quarterly | “w/e” in “period” column indicates a weekly report

* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release

* (n)SA: (non) Seasonally Adjusted

* PMI: “Purchasing Managers Index”

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