Like we said regarding the 10yr Auction: "the results are not as bad as the 10yr has demonstrated in the first few seconds." And regarding the FOMC Statement: "the losses are already moderating in traditional post-FOMC volatility, so this is by no means an indication of the direction of the rest of the day. Stay closely tuned as more volatility is likely, including a possible regression to the previous range of the day." I'm bringing this up not to pat myself on the back, though I do love doing so, but rather to save typing as this has indeed been the case. In short, initial reactions to both the auction and the FOMC made trading prices look worse than the actual "meat" of the events SHOULD warrant. Thankfully, logic finally prevailed as we've seen happen many times on FOMC days past and the original range has been attained by the end of the day:
Though we're back in the green throughout most of the stack, lenders might not share the same level of disregard for immediate prices in favor of a broader construction of the data. As such, our hand was forced to warn against reprices for the worse even though the gut response didn't necessarily warrant any sort of "lock bias." It's hard to communicate lock/float guidance at such times becuase I'd never want to ask you to hold off on locking before a reprice for the worse, have you do so, and then be WRONG about my initial impressions that we'd regain the previous levels. Whatever the case, that's what hedge ratios within your personal GUT-FLOPS are for...
At this point, if you did receive one or two of the reprices for the worse earlier and HAVE NOT yet received a corrective reprice for the better, it may be coming your way shortly. 10 Yr futures had a very nice bounce very close to 116-00 at 115-31+. They've held well over 116-00 ever since which is a fairly important "Bang Bang Bang!" price level for that particular issue. Tsy's themselves are once again dead even with their AM highs and post auction correction at 3.71. MBS however have taken the driver's seat from a price perspective having pushed even a bit higher than their levels from analogous time frames. Simply put, MBS are about 4 ticks better than their lows at 1020AM whereas Tsy's are just now getting there.
So, the unlocked are very likely safe to stay that way at this point, reassessing, as always at cut-off. Tomorrow it's Jobless Claims, Retail Sales, Import/Export Prices and of course, the 30yr auction. If you share my previously discussed sentiments on the 30yr auction, you may be a floater even longer, but naturally that depends on your current hedge ratio. For myself, my ratio has a lot to do with the 99-00 to 101-00 range still, until we break and hold below 99-00. And even though we broke below that level last week, markets failed to confirm the weakeness on the following session and haven't close below that level even with the inherent price drop that comes with having a September coupon on the charts as opposed to the dearly departed August. I urge you though, to forumulate your own opinions and expectations of what tomorrow might bring and adjust the percentage of your pipeline that you might choose to lock accordingly.
Remember, if you try to divine a firm lock or float recommendation and apply it to all your current deals at the moment, you will very likely die young and unhappy after an intense period of bodily and psychological stress. GUT-FLOP... Hedge Ratios... Sanity...
MBS Market Alerts
