On Friday mortgages strengthened vs. their benchmark big brother as MBS/TSY yield spreads tightened following the BLS announced that the unemployment rate hit its highest point since 1983. Although the data indicated growing stress in the domestic labor market, the report was "as expected" and a flight to quality did not permeate bond markets. 2s vs. 10s steepened 7bps to a spread of 194bps. The 2 year Treasury yield rose from 0.89 to 0.96. The 10 yr Treasury yield rose from 2.77 to 2.90 and the long bond yield rose from 3.58 to 3.70. Reprices for the worse were reported as MBS prices slowly deteriorated in 5 pm "going out" levels.
Last week mortgage investors demonstrated a clear partiality towards shorter duration "up in coupon" MBS positions. For the week FN 4.0s were down 18 ticks, 4.50s ended 14 ticks lower, 5.0s moved lower by 5 ticks, while 5.50 prices moved higher by 2 ticks and 6.0 prices increased 4 ticks. 10 year Treasury prices fell 40 ticks while its yield increased 15bps. 2s vs. 10s steepened 8.5bps for the week. MBS supply (loans you lock) remains the enemy of "rate sheet influential" production MBS coupons (4.0s and 4.5s) while "up in coupon" MBS investors continue to battle the high dollar prices (104 handle) of duration/prepay sensitive profit taking coupons (5.5s and 6.0s).
Homeowner Affordability and Stability Plan loan programs go live today. At this point only a few mainstream lenders are purchasing these loans from TPO mortgage bankers and brokers. We expect that more and more lenders will begin to offer this program through TPO channels. The debate however remains open if retail lending channels will undercut the legs of brokers looking to participate in the program. Delegated correspondent lenders have a clear cut advantage over brokers in regard to processing turn times and the application of UW guidelines. Brokers have a general pricing advantage given the wider range of lenders they are able to choose from when looking to place their HASP borrowers. Retail lenders will be quick to offer a streamlined option but will be handcuffed due to operational inefficiencies.
Looking ahead....the beginning of the month is generally a supportive time for MBS. We get prepayment reports tonight. Paydowns are expected to be near $90 to 100bn. The opening of HASP lending programs will force MBS buyers to reconsider the extent to which they continue to move "up in coupon". The Federal Reserve will remain an ever-present source of liquidity and support for mortgage bankers looking to protect their pipelines from interest rate risk. The question is not "Should I buy MBS?"....its...."What MBS should I buy?"
At the open mortgages are taking their directional guidance from TSYs (as usual of late). Benchmark yields are moving lower and MBS are following....
FN30_______________________________
FN 4.0 -------->>>> +0-04 to 99-28 from 99-24
FN 4.5 -------->>>> +0-03 to 101-20 from 101-17
FN 5.0 -------->>>> +0-01 to 102-27 from 102-26
FN 5.5 -------->>>> +0-00 to 103-21 from 103-21
FN 6.0 -------->>>> +0-00 to 104-14 from 104-14
GN30______________________________
GN 4.0 -------->>>> +0-02 to 99-29 from 99-27
GN 4.5 -------->>>> +0-03 to 101-25 from 101-22
GN 5.0 -------->>>> +0-01 to 103-12 from 103-11
GN 5.5 -------->>>> +0-00 to 103-30 from 103-30
GN 6.0 -------->>>> +0-00 to 104-16 from 104-16
The NIKKEI and HANG SENG moved higher overnight. European equities are trading lower. US stock futures indicate a move to the downside
EFFECTIVE FED FUNDS: -0.03 to 0.13 from 0.16
LIBOR FIXINGS
O/N LIBOR: +.0119 to 0.2837 from 0.2719
1 MONTH: -.0025 to 0.4756 from 0.4781
3 MONTH: -0.0041 to 1.1569 from 1.1609
6 MONTH: +0.0031 to 1.7156 from 1.7125
1 YEAR: +0.0281 to 1.9925 from 1.9644
Starting Thursday morning we will begin watching the May FN/FG 30 yr MBS coupons after April 30 yr MBS coupon trading is closed out on Wednesday April 8 (Class A Notification Day). Currently the drop is about 9 ticks on the FN 4.0.
Vic will outline the Economic Calender for the week ahead on the Mortgages Rate Watch blog.
MBS Market Alerts
