Yawn. What a slow day in global financial markets. No real headline news to report tonight. Not really anything going on tomorrow either. Here's your "going out" MBS marks ...
FN30_______________________________
FN 4.0 -------->>>> -0-11 to 100-05 from 100-16
FN 4.5 -------->>>> -0-08 to 101-28 from 102-04
FN 5.0 -------->>>> -0-04 to 103-01 from 103-05
FN 5.5 -------->>>> -0-01 to 103-25 from 103-26
FN 6.0 -------->>>> +0-00 to 104-15 from 104-15
GN30__________________________________
GN 4.0 -------->>>> -0-12 to 100-09 from 100-21
GN 4.5 -------->>>> -0-08 to 102-00 from 102-08
GN 5.0 -------->>>> -0-03 to 103-18 from 103-21
GN 5.5 -------->>>> -0-02 to 104-02 from 104-04
GN 6.0 -------->>>> +0-00 to 104-18 from 104-18
Ahh Im just kidding...WHAT A DAY!!!!!!!!
US Stocks had one of those "face melting" rallies after political policymakers hit global investors with a cold hard "NO MORE PROTECTIONISM" slap to the face today.
After a fair amount of "arm twisting" the US Financial Accounting Standards Board obliged the requests/demands of the US Congress to allow banks more flexibility when exercising judgment on the application of "mark to market" accounting. Specifically the accounting board relaxed FAS 157-e : Determining Whether a Market is Not Active and a Transaction Is Not Distressed and FAS 115-a, FAS 124-a, and EITF 99-20-b: Recognition and Presentation of Other-Than-Temporary Impairments. Here is the Summary of Board Decisions if you care to dive deeper into the topic.
If you search the blogosphere there are a wide range of opinions regarding the expected effectiveness of FASB's decision to ease "mark to market". The real debate lies in the argument over whether or not the relaxation of mark to market will only result in additional balance sheet intransparency (not a word but you follow) and perhaps in the long run....the total loss of perspective on the REAL value of financial institutions. Others are upset the Geithner Plan (PPIP) was never given a fair chance to test the market's willingness to "bite the bullet" and get rid of whatever toxic junk is left on their balance sheets. We'll find out soon enough....
Also making headline news today was the G20 Summit in London. World Leaders agreed to cough up $1.1 trillion more in an effort to put an end to the global economic mess. I spent a fair amount of effort providing some details in this blog post MBS UPDATE: G20 Reactions.
The diplomatic accord reached at the G20 Summit combined with relaxations of mark to market accounting policies provided enough exuberance for markets to start BELIEVING that the light at the end of the tunnel is not a train heading in our direction. BELIEVING in a plan is step 1 in ending protectionism. Spending a boatload of government money and lowering benchmark interest to -0.00% is step 2 in the process of slowing the pace of economic contraction. Many believe a bottom has been built into stock markets and a recovery is already underway. Let's hope these actions are enough to convince global investors that its time to join their government in the recovery process. No More Protectionism!!!
Before I get all carried away with excitement that stock markets may have finally found bottom (MAY HAVE) I should point out that several market participants are stuck with open short positions. On the last NYSE short interest report....short interest rose 10.8% from late February to mid-March....the sharpest rise in open shorts in more than a year. Short interest on the NASDAQ rose 4.4% over the same period. Financials and information technology sectors received the largest short-interest inflows. Best of luck to you short sellers out there....(not really...shame on you!!!) At this point you might want to cover because it appears that investor sentiment is no longer "sell the rips and buy the dips"...its more "look for an opportunity and HOLD". Is that how you feel? Please say yes so I can be reassured that protectionism is finally fading.
The Dow closed up 216.48 to 7,978 (+2.79%). The S&P 500 closed up 23.30 to 834.38 (+2.87%). The NASDAQ closed up 41.79 to 1,294.30 (+3.34%)
Here's how the individual sector's performed:
Unfortunately the rally in equities came at the expensive of Treasuries. The 10 yr Treasury yield rose to 2.75% from 2.65%. 2s vs. 10s steepened 4bps to 187bps from 183bps.
Mortgages continue to trade in a world of their own while the world digests the deluge of headline news and formulates new trading strategies. MBS outperformed TSYs as yield spreads were slightly tighter at the close. I am sure you are getting tired of hearing this but....
In terms of the MBS coupons that are most indicative of future rate sheet behavior, the Federal Reserve continues to provide support for mortgage bankers looking to hedge their pipelines from interest rate risk. Today the Fed had their hands full as originators, who anticipate an increased demand for new loans, are ensuring they lock in pipeline profits at MBS price highs. Government funded liquidity allows lenders to pass along lower borrowing costs in the future....OR...it helps counterbalance the added cost of supplementing a work force that is struggling to keep pace with continually growing borrower demand for new loans. (Sound familiar?)
Side Note: Chase Announced they will Purchase DU REFI PLUS today
Non-Federal Reserve accounts, aka conventional market participants, are choosing to chase profits in shorter duration "up in coupon" mortgages. This is nothing new as the MBS market deems borrower refinancing behavior to be slower than expected. Not a surprise considering the casual attitude that the majority of mainstream lenders have regarding the implementation of relaxed GSE lending guidelines.
Regardless of your trading bias MBS coupons are considered expensive in dollar price terms (as opposed to relative value), fortunately mortgages have shown resiliency in sell offs and used any cheapening as an opportunity for strengthening...Translation: MBS buying interests increase after sell offs!!! Demand for MBS related cash flows remains strong from all accounts ....Federal Reserve and day trading, profit taking, "up in couponers" alike....
Here's an intraday chart of your "rate sheet" influential mortgage coupons...
The Federal Reserve released their weekly purchase activity today. Net purchases were $32.910 billion MBS. 54% of the purchases were 4.0 coupons. 41% were 4.5 coupons. So 95% of their purchases were rate sheet supportive. This brings total net Federal Reserve MBS purchases to $302.81bn which means there is close to $950,000,000,000 left to help us out.
I had some fun with excel tonight (which is why I am so late to post) but I think it will illustrate the Federal Reserve's true intentions. So far 23.44% of total Fed purchases have been in 4.0 coupons and 47.36% of Fed purchases have been 4.50 coupons.
Here is a chart illustrating the evolution of Fed Agency MBS purchases starting with Jan.5 ending April 1.
Notice something???? Not too much besides 4.0s and 4.5s at this stage in the game right????
As is customary on the MBS Commentary Blog after the Fed releases their weekly Agency MBS Purchase report...THANK YOU FEDERAL RESERVE FOR SUPPORTING THE MORTGAGE INDUSTRY!!!!
TOMORROW: THE "BE ALL END ALL" OF ECONOMIC REPORTS: NON FARM PAYROLLS....Economists are anticipating some scary numbers. Consensus is for 660,000 job losses in March and an unemployment rate of 8.5%. I am going to throw out my guess...I say 740,000 job losses. What say you?
I will close out the day with a chain email sent to me by Mr. Victor Burek. A little perspective on socialism....
An economics professor at Texas Tech said he had never failed a single student before but had, once, failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.
All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little.. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.
The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for the benefit of anyone else. All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away; no one will try or want to succeed.
MBS Market Alerts
