Hello Good Morning All. Everyone enjoy their weekend?
Despite another round of record TSY issuances (which is what many are trading)...rates faired well last week. Weakness in stocks, some bond bullish econ data, low rate verbiage from the Fed, and the approaching month end/quarter end were supportive of an added bid in bond markets. "Rate sheet influential" MBS/TSY (and swap) spreads tightened, the secondary market current coupon was slightly lower at 4.283%, and mortgage rates held near fourth month lows. All in all it was a good week for mortgage professionals looking to lock up any last minute month end closings.
This week brings about more fixed income supportive events. Month and quarter end are upon us...which means liquid assets and cash will occupy balance sheets. PLUS fixed income index extensions will increase demand for higher duration debt (LIKE RATE SHEET INFLUENTIAL MBS COUPONS!!!). PLUS Non-Farm Payrolls data prints on Friday. PLUS prepay re-investments!
There will however be multiple opportunities to trade the range and take advantage of a quiet quarter-end day trading environment. This means CHOPATILITY is a consistent concern for lock desks looking to protect their pipelines from interest rate risk. In the short run, my rate sheets would have a few extra bps built in to cover the expected ups and downs. Adding motivation to padded pricing strategies is the fact that month end can be a distracting time for secondary. Confirming commitment prices for commissions, reconciling purchase advices, clearing the warehouse line (if you use one), last minute rushes, chasing after shippers to get files delivered, etc, etc are all more important than staring at trading screens. (This really only applies for shops with undersized lock desks)
If you didnt read the open, today is Yom Kippur....THE day of atonement in the Jewish religion. This means more out of office replies than normal and a lethargic pace in the market. Trading flows do indeed reflect lightly staffed operations today.
In the MBS market, FN and GN traders report the following....ZZZZZZzzzzzZZZzzzzzzz yawn. Screens have flashed about as many times as the Redskins scoreboard this season (HAHA BARELY ANY POINTS!!!). That said...MBS price movements have largely been a function of traders adjusting offer prices as the benchmark rates market fluctuates. (dont want to get lifted while you're zoning out on one of the many TVs on the trading floor!)
Currently the FN 4.5 is +0-01 at 101-05 yielding 4.35% and rate sheets are mostly unchanged from Friday. It has been a choppy morning...
In the benchmark TSY market 315,000 cars have traded in 10s, 103K 2s, 165K 5s, and 90K 30s. Its slow...
The yield curve has flattened a few more basis points as the long end outperforms the short end. This is a function of month end debt index extensions..when the index extends, portfolio managers must adjust their holdings to fall in line with the performance of their benchmark. Longer index = need to buy longer lived debt. This is one of those month end supportive events we discuss. For MBS, accounts will look to buy coupons that are less susceptible to prepayment risk and therefore have longer lived cash flows...this is good for rate sheet influential coupons!
Yield Curve
2s/5s: 1bps FLATTER at 137bps
2s/10s: UNCHANGED at 233bps
5s/10s: 1bps STEEPER at 96bps
5s/30s: 2bps FLATTERat 170bps
10s/30s: 3bps FLATTER at 75bps
The 10yr has held in a range between Friday afternoon's 3.34 yield high and a low of 3.30%. Currently the 10yr yield is at the high side of the recent range as stocks are holding intraday gains.
The S&P has recovered all of last Thursday and Friday's selling...but has failed to break through Wednesday's late afternoon post selloff prices...
MBS Market Alerts
