Better than expected earnings from JP Morgan have helped stock traders find short term optimism (or find the right TECH level to cover a short position or re-enter with a new day trading long). The rally in stocks has steepened the thinly traded (another slow trading session) yield curve a few bps which has consequently put some welcomed selling pressure on the expensive MBS stack (yes I said welcomed).
Supply from mortgage bankers has tapered off today after originator's dumped $6bn in forward commitments yesterday. Remember mortgage bankers will look to gorge on high dollar MBS prices. This forward commitment will give lenders the ability to cushion rate sheets in the event of a rapid selloff. Logically this implies rate sheets should be stable intraday....BUT some lenders do not hedge their pipelines as efficiently as others and "reprice for the worse" alerts remain a high risk (while MBS prices are trading at the top of their range.) Translation: the MBS market is quiet today...we might be in for a choppy ride.
Today market participants are showing an inclination to move "down in coupon" in anticipation of new loan originations increasing over the next month. We expect that this "down in coupon" process will be a slow migration process from 6.0s to 4.5s...however seeing any added attention from accounts other than the Fed is a positive! (even though it may not be long term). Since the last "rapid sell off" the MBS stack has recovered its losses and begun retesting its 100-11 upside resistance level. Look for this price level to be STRONG RESISTANCE today...meaning if we recover back to 100-11 we might see another "rapid sell off"...followed by another recovery. UP AND DOWN DAY
Mortgage rates inched lower again today. Yesterday was a great day to lock...but so is today. Remember floaters: we are at the top side of the trading range. When mortgage bankers lock their loans it is a sign that you should consider doing the same. GUTFLOP it up...
Since 5pm "Going Out" Marks....
FN30_______________________________
FN 4.0 -------->>>> +0-01 to 100-09 from 100-08
FN 4.5 -------->>>> +0-02 to 102-03 from 102-01
FN 5.0 -------->>>> +0-01 to 103-09 from 103-08
FN 5.5 -------->>>> +0-00 to 104-03 from 104-03
FN 6.0 -------->>>> +0-03 to 104-29 from 104-28
GN30________________________________
GN 4.0 -------->>>> +0-02 to 100-15 from 100-15
GN 4.5 -------->>>> +0-02 to 102-10 from 102-11
GN 5.0 -------->>>> +0-00 to 103-27 from 103-28
GN 5.5 -------->>>> +0-00 to 104-11 from 104-12
GN 6.0 -------->>>> +0-02 to 104-26 from 104-26
UST2YR Yield: +0.016 to 0.8750
UST3YR Yield: +0.013 to 1.2390
UST5YR Yield: +0.031 to 1.7433
UST10YR Yield: +0.042 to 2.8101
UST30YR Yield: +0.037 to 3.6667
In other news it was announced today that the results of the regulatory stress tests for the top 19 US Banks will be publically disclosed on May 4. These results will include a "capital recovery plan" for the banks who are in need of more capital reserves.
Market participants may be hesitant to commit to long term trading positions prior to the release of this data...which means equity trading may be driven by "selling into strength/buy into weakness" day trading strategies. MBS coupons have however exhibited independence from short term trading convictions which can be illustrated by the tight trend channels formed by the Fed provided stability and liquidity.
Advanced thoughts: The Fed is lowering MBS basis and removing volatility which reduces the need for banks to hedge against convexity risk. By doing so the Fed is helping to lower fall out costs and in turn allowing lenders to offer lower mortgage rates.
MBS Market Alerts
