FN30_______________________________
FN 4.0 -------->>>> -0-04 to 100-14 from 100-18
FN 4.5 -------->>>> -0-03 to 102-02 from 102-05
FN 5.0 -------->>>> -0-02 to 103-04 from 103-06
FN 5.5 -------->>>> -0-01 to 103-24 from 103-25
FN 6.0 -------->>>> +0-01 to 104-15 from 104-14
GN30________________________________
GN 4.0 -------->>>> -0-01 to 100-20 from 100-21
GN 4.5 -------->>>> +0-00 to 102-07 from 102-07
GN 5.0 -------->>>> -0-01 to 103-21 from 103-22
GN 5.5 -------->>>> +0-01 to 104-03 from 104-02
GN 6.0 -------->>>> +0-02 to 104-17 from 104-15
Last week we spent a good amount of time discussing the effects that surges of originator supply (lenders making commitments to deliver loans to market) have on the MBS stack when dollar prices of mortgage coupons are running near their respective record highs. (FOR ILLUSTRATION OF RECORD HIGHS SEE THIS BLOG POST)
Remember: when mortgage banks/originators sell supply of loans to the MBS market they are committing to deliver a certain amount of loans to the buyer on settlement date...very similar to how you lock your loans.
Yesterday we postulated that this was once again a concern as originators will be looking to "lock in pipeline profits" at the highest MBS price possible...POSTULATION: "If originators attempt to dump off any supply of production coupons (the loans you close) the TBA MBS market will gladly take the opportunity to allow excess supply assist in the process of pushing high dollar prices of MBS coupons back towards equilibrium. Translation: high MBS production coupon prices put us on reprice alert watch." (a changed a few words for purpose of added clarity)
This has indeed been the case today. Originators made their commitments to the market and buyers allowed MBS prices to drop a few ticks. Not to worry though...In every instance of late, when originator's have offered up their supply of loans the Federal Reserve has provided significant support and liquidity to mortgage bankers looking to protect their pipelines from interest rate risk. The Fed will remain a supportive influence of production coupons (rates that you lock in) which will enable lenders to continue to offer low mortgage rates for the foreseeable future.Whether or not lenders pass along lower borrowing costs to consumers remains an ongoing debate. Which is why following GUTFLOP IS ESSENTIAL.
To illustrate...note the nice uptrend FN4.0s have been in over the past two weeks. Notice the wider/more choppy trading range of the FN 4.0 compared to the tight trading range in which the FN 6.0 has traded. The choppy trading range of the FN 4.0 illustrates the markets willingness to let prices cheapen up a few ticks before buying supply offerings. It illustrates the Fed is in control of production MBS prices because they are really the only consistent buyer. When Supply > Demand = Buyers Market...when prices are deemed too expensive the Fed can afford to allow their bid to fall a few ticks. Also note the "topping out" of prices...TOO EXPENSIVE! The stable range of the FN 6.0 illustrates that the remainder of MBS market participants are enjoying their profits from "up in coupon" trading strategies. The tighter upward trend shows that profit takers are day trading the market...they sell when MBS spreads are too tight and buy when MBS spreads are too wide and they dont wait long to do so...illustrated by tight range.