MBS Live: MBS Afternoon Market Summary
A relief rally followed today's 30yr Bond Auction despite the auction itself being only average. Considering the concession offered by overnight weakness, it could be argued that this week's longer-dated Treasury auctions have been pretty disheartening. But we'd also consider that corporate issuance has been uncharacteristically high and along with the technical environment and quiet week for news/data in Europe, that there are plenty of non-fundamental reasons that we could have seen the recent sell-off unfold at a seemingly rapid pace. This also accounts for cries of "b-b-b-but, Europe isn't fixed yet and the domestic economy remains shaky!" In other words, we don't have to consider that fundamental argument at all in order to wrap our minds around the recent sell-off, even if that's no guarantee that the selling won't continue tomorrow. Also causing prices to seemingly drop abruptly this afternoon, but in no way related to economic fundamentals will be the MBS settlement for Fannie and Freddie 30yr Fixed coupons that follows the close of MBS trading.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
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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.
1:21PM :
ALERT ISSUED:
30yr Bond Auction Garners Average Results. Bond Markets Rally Anyway
At first there was only a slightly detectable hint of positivity in MBS prices following the 30yr Bond Auction. It looked more like a purely incidental continuation of a slow-paced bounce back from lows hit around 10:30am. Bond markets were sideways at first, like someone who had just received good news but was trying so hard to contain themselves that you couldn't tell they were happy to hear the news.
Now we see the happiness shining through, even though it's relative to the circumstances. In other words, we wouldn't have been happy to see 10yr yields in the high 1.6's last week, but they're strangely encouraging at the moment. Fannie 3.0s at 103-08? We would have said "no thanks!" last week, but getting back there today after hitting 103-00 earlier is nice to see.
As for the auction itself, it was average with a 2.41 bid-to-cover and a 1.4bp tail (slightly higher than expected stopping yield). 30yr Auctions can be, and have been a lot worse. If you encounter any statistics referring to a higher average bid-to-cover (say, around 2.6-2.7 range), please note that these averages are factoring in ALL 30yr auctions as opposed to distinguishing between reopenings and refundings. To fail to do so would be ignore the inherent differences between the two. It's natural for refundings (which is what today's was) to have lower bid-to-cover ratios. So think more C+ and less D-.
As to where things go from here, we're not out of the woods by any means, but stand a fighting chance. Some lenders may see fit to offer positive reprices if current levels in MBS are held or improved upon.
Now we see the happiness shining through, even though it's relative to the circumstances. In other words, we wouldn't have been happy to see 10yr yields in the high 1.6's last week, but they're strangely encouraging at the moment. Fannie 3.0s at 103-08? We would have said "no thanks!" last week, but getting back there today after hitting 103-00 earlier is nice to see.
As for the auction itself, it was average with a 2.41 bid-to-cover and a 1.4bp tail (slightly higher than expected stopping yield). 30yr Auctions can be, and have been a lot worse. If you encounter any statistics referring to a higher average bid-to-cover (say, around 2.6-2.7 range), please note that these averages are factoring in ALL 30yr auctions as opposed to distinguishing between reopenings and refundings. To fail to do so would be ignore the inherent differences between the two. It's natural for refundings (which is what today's was) to have lower bid-to-cover ratios. So think more C+ and less D-.
As to where things go from here, we're not out of the woods by any means, but stand a fighting chance. Some lenders may see fit to offer positive reprices if current levels in MBS are held or improved upon.
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.
Eric Leithliter : "REPRICE: 3:10 PM - Suntrust Better"
Eric Leithliter : "REPRICE: 3:09 PM - Kinecta Better"
Daniel Cruz : "REPRICE: 2:28 PM - Flagstar Better"
Rob Clark : "2nd reprice for 30 year only"
Rob Clark : "REPRICE: 2:27 PM - Provident Funding Better"
Matthew Graham : "could have been a lot worse, but it's still not giving me the greatest feeling about stampeding quickly to lower rates."
Matthew Graham : "1.4bps is a fairly mild tail, but we had backed up quite a bit heading into this"
Matthew Graham : "Yeah, disappointed in Santelli when it comes to reading too much into BTC averages without distinguishing between refunding/reopening. He invariably grades poorly when we have a low BTC on a refunding. Yet the 2.4 is perfectly average."
Victor Burek : "D from santelli"
Daniel Kramer : "hey, i averaged a C+ thru hgh school and college, and i turend out fine"
Matthew Graham : "RTRS - US TREASURY - PRIMARY DEALERS TAKE $8.89 BLN OF 30-YEAR BONDS SALE, INDIRECT $5.87 BLN "
Matthew Graham : "RTRS- U.S. 30-year bond BID-TO-COVER RATIO 2.41, NON-COMP BIDS $19.12 MLN "
Andrew Horowitz : "relief rally "
Matthew Graham : "B-/C+ is fair, more toward C+ for those not considering difference between refunding/reopening"
Matthew Graham : "RTRS- U.S. SELLS $16 BLN 30-YEAR BONDS AT HIGH YIELD 2.825 PCT, AWARDS 91.84 PCT OF BIDS AT HIGH "
Andrew Russell : "so a C+"
Matthew Graham : "2.825, 2.41 btc"
Matthew Graham : "Auction Results: "
Matthew Graham : "assuming it's accompanied by a decent yield"
Matthew Graham : "anything over 2.30 isn't too terrible, but over 2.50 would be great. 2.70 would be stellar"
Matthew Graham : "2.3-ish"
Andrew Russell : "what btc are you looking for MG?"
Matthew Graham : "30yr auction coming up. Like 10's, 30yr reFUNDings tend to have much lower Bid-to-cover ratios than reOPENings. Last 4 BTCs have been 2.7 2.4 2.73 2.76"
Andy Pada : "MG, do you have past auction data that you care to share?"
Andrew Russell : "And in response to the mention in the commentary about Realtors, their lobbying, and their commissions ("Rob, folks wonder about Realtors charging 5-6% commissions, regardless of transaction amount, whether that is fair, and whether or not the National Association of Realtors has any clout."), I received, "As a Realtor, I don't ever recall a lender or mortgage broker ever, taking customers around, dealing with their children and families during showings, constantly printing out info for customer"
Andrew Russell : "anyone else read the following? Is their job really harder than ours? Is this really justifying their splits and justifying ours? "
Bryce Schetselaar : "REPRICE: 12:38 PM - Provident Funding Better"
Steve Chizmadia : "Have fun getting a loan closed in a timely manner at Wells at 2.75%. They will be in a position in which the turntimes may lead to the need of a new appraisal because the first appraisal expired"
Matt Hodges : "yes, they did, non-competitvely, but the pricing is there"
Brett Boyke : "didn't they already do that"
Matt Hodges : "when WF prices 2.75% C30, it's coming - it's simply a matter of time"
Steve Chizmadia : "The clients we all have waiting for better pricing could lose the opportunity all together. In addition to that even if they get the best pricing down the road at 3%... whatever it turns out to be, they may have missed 4 months+ at 3.5% and whatever savings that would entail. Fence sitters looking for lower rates that can clearly benefit from a no or low cost loan now need to take that into consideration"
Matthew Graham : "yes, but we'll get some of it anyway over time regardless of further Fed MBS targeting"
Christopher Stevens : "I agree 100% MG...that was the article I posted earlier."
Victor Burek : "if mbs prices went higher..sure lenders woudlnt pass it all along. but we would get some of it"
Steve Chizmadia : "Exactly what MG said"
Ted Rood : "Amen to that. Rate sheets used to depend on MBS prices. Now they appear to be more of a function of lender capacity and appetite for product than MBS prices!"
Matthew Graham : "sorry for the obvious question, but if capacity is stretched thin and lenders aren't interested in cannibalizing their own locks, let alone early prepays, what incentive do they have to offer lower rates? Why do MBS prices moving any higher even matter?"
Steve Chizmadia : "There have been many times all of us in this community have asked "where are the (justified) reprices?" that we never get. "
Steve Chizmadia : "Not only the fed that is involved. They can twist MBS prices all they want. Doesn't mean we see it on the rate sheet"
Brett Boyke : "sorry long but relevant - From Art Cashin - That's the Fed's frustration. They have made trillions of dollars available but no one wants to borrow any of them or spend them. More correctly, no one with a good credit rating wants to borrow them or spend them.
We think Eric Rosengren articulated that frustration and hinted at there next initiative to address it. We think Bernanke may flesh it out in coming weeks and certainly at Jackson Hole.
Traders (both here and Chicago) think it may be an "
Andy Pada : "I'm hearing news will be out within 30 days."
Jason Adams : "We can only hope Andy. I have alot of clients I did right at HARP one that would love another chance. I wish they would remove the date all together."
Andy Pada : "anyone else hear this or can confirm this?"
Andy Pada : "spoke with someone and the cut off date on HARP should be changing in the near future."
Matthew Graham : "both. but given that 3.625 and below = 3.0 coupon, probably more 3.0 as far as rate sheets are concerned."
Andrew Horowitz : "pends on where your volume is AP"
Andy Pada : "Are we tracking the 3.0 or the 3.5?"
Mike Drews : "just locked one---business decision deal..can't lose any more on it."
Andrew Russell : "both short and longer positions would love these discounted prices, no?"
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