Good morning. Happy Monday. I got to the office bright and early this AM...then realized there was nothing on the calendar so I passed out on the couch until 8AM.
For football fans...all I have to say is Adrian Peterson is not human. Man vs. boys.
For pop culture addicts...seriously Kayne??? SERIOUSLY? Come on dude...too much pre-gaming?
Anyway...back to business.
Benchmark rates are backing up in a dataless rumor driven day trading environment. The 2s/10s curve is steeper as the 10 yr yield has given back more than 10bps from Friday's low yield of 3.27%.
Currently the UST10YR is -0-08 at 102-02 yielding 3.378%.
Nothing overly exciting to report from the secondary mortgage market this AM. Rate sheet influential MBS prices are moving in step with benchmark big brother TSYs and swaps. Trading flows are slow with the Fed making easy work of any originator supply offerings (said to be 2x offer).
Currently the FN 4.5 is -0-03 at 100-22...yielding 4.418% (5 CPR). 100-22+ has been tough resistance this morning...
Heres a peek into the minds of mortgage market researchers...
In their Securitization Weekly, Barclays raised their MBS outlook from neutral to overweight. This bias was based on a few factors, mostly notably for loan officers...supply/demand technicals will continue to favor the Fed's buying powers as any increases in new loan originations are not expected to drastically effect valuations
Banc of America Securities-Merrill Lynch said the opposite...recommending that accounts reduce exposure to the mortgage basis from an overweight to a neutral weight. This means BoA does not favor MBS at the moment.
JPMorgan's remains neutral MBS as technicals are mixed. They are somewhat nervous about a reduction in Fed buying combined with money manager selling could cause mortgage spreads to widen by about 15-20 basis points from current levels. In the near-term Fed buying should counter money manager selling. Looking further out the timeline, if spreads widen up and MBS cheapen against benchmarks, JP Morgan expects real money accounts to become buyers again.
Given the fact that mortgage rates are at 3 month lows and the Obama Administration's new found energy to prevent more foreclosures...the trading side of MBS world expects prepay speeds to increase in September...thus many accounts are moving down in coupon to protect their cash flows from early payoffs. This is a good thing for rate sheet influential MBS coupons (more demand for longer cash flows), but this bias is subject to change at any moment if the refinance/purchase outlook worsens.
Should MBS investors be worried about an increase in prepay speeds? Is your pipeline full of new refinances?
Much rumor is circulating around the investment community that the US-Chinese trade war issue has been a money moving "event" this morning. I am not sure we can agree with that stance...BUT Asia has been a no show in the mortgage market today.
This is really nothing new though. Overseas partipation is not consistent in the mortgage market and wont be a problem until Asia goes missing when they would normally be investing...
When should we expect them to buy/sell?
Most overseas central bankers invest in size (larger purchases)...these accounts are not day traders. Given that strategy, Asian central banks usually only invest when a trend has been confirmed. Until the recent rally is confirmed (stocks go bearish), we wont be able to make any substantial observations regarding angry Asian MBS investors.
In the bigger picture...the US is the world's consumer, the ball is in our court.
MBS Market Alerts
