On the day, treasury prices fell appreciably with the 10 yr note down 17 ticks pushing the yield to 2.985%.  As is usually the case with rising treasury yields, stocks rose.  This time the final reading was 8076 on the Dow which is 119 points up on the day.  This, however, was off highs of 8128 on the heels of the Stress Test Metrics announcement.  Hat's off to AQ who called the late day selling that brough us back down to the closing levels.

But whereas the bookend values for this day of trading show movement for the aforementioned, MBS ended the day completely unchanged in 4.0's and a tick better in 4.5's.  Here's the full breakdown:

FN30________________________________

FN 4.0 -------->>>> +0-00  to 100-02  from 100-02

FN 4.5 -------->>>> +0-01  to 101-27  from 101-26

FN 5.0 -------->>>> +0-01  to 103-00  from 102-31

FN 5.5 -------->>>> +0-02  to 103-24  from 103-22

FN 6.0 -------->>>> +0-00  to 104-17  from 104-17

GN30________________________________ 

GN 4.0 -------->>>> +0-00  to 100-08  from 100-08

GN 4.5 -------->>>> +0-00  to 102-03  from 102-03

GN 5.0 -------->>>> +0-01  to 103-19  from 103-18

GN 5.5 -------->>>> +0-02  to 104-00  from 103-30

 

And taking a look the the charts, you can see a reasonable amount of "up and down" earlier in the day with the range getting as wide as nearly 10 ticks briefly.  But for the most part, it was calm, sideways, 5 tick trading range throughout the day.  This was especially calm considering the convulsions of the other markets pictured in the bottom chart:

 

This puts a rather boring and uneventful cap on what was a rather boring and uneventful week.  We often revisited and lamented the lack of data this week, and indeed this turned out to drive volume to a mere 80% of recent averages.  It's not uncommon to see an 80% volume reading on a given day, but to have that be the reading for the entire week signifies a salient lack of participation.  But the "boring" doesn't end there!  We also saw "more of the same" with the Fed operating in their now-cliche role of "overflow patrol," readily absorbing whatever could be thrown at it by way of MBS supply.

To that end, they purchased a bit more this week than last, as supply ticked up enough to warrant a roughly 26 billion dollar check this week versus the 20 billion dollar outlays in each of the last two weeks.  Perpetuating the MBS cliche was the standard limited involvement from other account types, and as AQ mentioned, the upper coupons are becoming more and more hen-pecked as accelerated prepayment expectations cast premium coupons in an unfavorable light.

The week did hold a few pieces of housing related data.  Granted, none of it moved markets, but seeing as how we'll take a look at any industry related content we can get at the moment, here are the vitals:

  • New Home sales declined .6% in March which was slightly less than the consensus.
  • Existing Home sales declined 3% in March which was also less than expected.
  • US Home Prices rose .7% in February vs. January according to the FHFA report (which sadly only includes homes secured with GSE loans and therefore, we believe, is not nearly as accurate as some of the other metrics--Case Shiller comes to mind).  Regardless, the Year over Year reading was still in the red by 6.5%, so even the rosiest of the reports can't find enough lipstick for this little piggy.
  • Mortgage Applications rose 5.3% in the week ending April 17th.  This was chalked up exclusively to refinance acticity.  Refi's accounted for nearly a full 80% of applications.  This is the highest since January (when we're told rates got "really low, really fast")

It was also a somewhat active week for that "behind the scenes" bill that was heard before the house financial services committee.  As we expected, the bill was not destined to sail through unammended.  And so the ammendmends ensued.  The committee announced a mark up on April 28th.  In testimony on the legislation, MBA Chairman David Kittle said the bill included provisions that were not acceptable to the mortgage industry. For example, the MBA favors uniform standards across the states for predatory lending practices, which the bill does not include. In addition, the requirement that lenders retain at least 5% of the credit risk would create a burden for non-depository lenders as they "do not keep significant cash on hand but rather rely on warehouse lines of credit." The result would be the inability for these lenders to compete and would lead to less competition, reduced choices for borrowers and ultimately increased borrowing costs for borrowers.  We'll keep you apprised of any sharpness retained by this bill's teeth as it works its way through our seemless and rapid bureaucracy. 

Next week gets "a bit" better as far as the "action" is concerned. Well, who are we kidding....?  It's a borderline titanic data week.

  • The FOMC meeting beginning Tuesday and concluding on Wednesday with the 2:15 statement should kick off the week's activity as things are normally muted leading up to this
  • $101 billion in treasury auctions (2s, 5s and 7s) occurring Monday through Wednesday.
  • S&P/Case-Shiller HPI, Consumer Confidence, and Deutsche Bank Earnings all hit on Tuesday. 
  • advanced Q1 GDP, and Treasury Refunding announcement on Wednesday
  • Initial Jobless Claims, Personal Income, Q1 ECI, and Chicago PMI on Thursday
  • Michigan Sentiment, ISM Index, and Factory Orders on Friday.

All this on top of the fact that it's the last week of the month, a week before MBS Class A settlement and NFP (yes, already), and it ticks down 5 more precious days before a much anticipated prepayment report, which will have many market participants taking up positions in anticipation.  All in all, we could see a ton of movement next week.  And considering we are still quite near our long term internal support level of 99-20/23 on 4.0's, this will likely be the week we get some definitive answers as to whether or not we will conform to historical patterns and dip back below the line, or buck the trend with the help of favorable data and move back to historic highs. 

Floaters should be fine into the beginning of next week notwithstanding any headline shockers as the previously mentioned lull prior to Fed Minutes will provide enough safe passage to get locked if it looks like you'll need to.  Be warned, however, that spreads pushed tighter over the last two days, which brought us to the tightest of recent tights.  Two ways to interpret this: either a trend that will keep on trending, or the relative value of MBS is reaching levels that could encourage some selling in lieu of other fixed income instruments with more generous spreads, or the relatively cheap trade-off to a risk free treasury.  Whatever the eventuality there, we'd still expect to see much more movement later in the week opposed to Monday and Tuesday Morning.  You call the ball, but should you find yourself in that familiar "intra-day float boat" we'll get you out of the water if it looks like seas ahead are too rough.  In your GUT-FLOPPING, just be sure to account for the potential of a substantial shift in MBS trend from "sideways" to "directional."  Until then, have a safe and happy weekend.  MG Out.