Hello people.
The FN 4.5 is trading +0-07 at 100-22 yielding 4.378% (5 CPR) and the FN 4.0 is +0-10 at 98-07 yielding 4.216%. Weighting the FN 4.5 at 80% and the FN 4.0 at 20% put the secondary market current coupon at 4.346%. Rate sheets rebates are slightly better than Friday.
Here is the FN 4.5 two day...Friday afternoon price weakness did not carry over into today's session.It has been a chopatile morning though!
Here is the FN 4.5s recent trend channel. The RED today illustrates that although prices are higher today, we have fallen out of the channel and have been unable to move back into it. This doesnt necessarily imply weakness for rate sheets, however it does tell us that rich MBS prices are a bit exhausted....so we will need TSYs to rally on if we are to see better rates.
This exhaustion is illustrated via the FN 4.5s relative strength against benchmark TSYs, measured via yield spreads. TSYs are outperforming "rate sheet influential" MBS coupons this morning...yield spreads are wider. Generally this is a function of a non-active Federal Reserve...and a quiet MBS trading environment...which is indeed the case today. However there is another factor to discuss...MBS yield spreads have been consistently tightening over the past week....we may see "rate sheet influential" MBS give back some of their recent spread strength this week...MBS may be outpeformed by benchmarks this week! Again..not necessarily a bad thing...just less activity in MBS trading. If we remain range bound, rate sheets shouldnt change too much. That said we are inclined to be rate lockers at high side of the price range and floaters when prices are near the bottom side of the range (until the range is no longer moderating price action).
In the futures market, momentum in the 10yr contract has run out of steam near 117-10, which corresponds to the 62% retracement of the Sept. 9 price low. 117-09/117-10 (3.43%) has also been the high volume price mark...this will serve as resistance for the intraday rally while 117-05/117-04 will serve as support.
When intepreting in yield, futures prices imply the 10yr note is once again range bound, and will likely trade between 3.41 and 3.46 today. Adding to that sentiment are momentum indicators, which are telling us that the rally may stall near 3.41/3.42. Here is the daily 10yr chart with moving averages, stochastics, and MACD. More than anything our techs point towards more range trading (not a bad thing for mortgages....should keep rates stable).
Other points of interest...
- Volume is low in the rates market
- Weakness in stocks helps TSYs this morning...could hurt us later. S&P currently -0.37% at 1064
- Dollar still stronger (bad for stocks), Oil -$2.76 at $69.28
- Fed bought $4.05 billion vs. $15.3bn that was submitted. Amount as expected as TSY purchase program winds down.
- Leading Indicators +0.6% vs +0.9% in July. Slightly lower than expected +0.7%
Ex-FHA Commissioner Brian Montgomery posted commentary on MND's Voice of Housing blog channel this morning. Its a must read....
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