September Consumer Confidence Survey data registered a 53.1 read vs. the consensus estimate of 57.0 and the previous 54.5 (revised from 54.1). Following the release, rates rallied from intraday price lows/yield highs.
The FN 4.5 bounced off the intraday low print of 101-01, but failed a test of yesterday's intraday high price of 101-11+. Currently the FN 4.5 is -0-03 at 101-09 yielding 4.3430% and the FN 4.0 is -0-01 at 99-01 yielding 4.1092%.
The secondary market current coupon is 4.2144%
Here is the FN 4.5 two day...CHOP CHOP
MBS market trading flows picked up after the consumer confidence data release. Servicers, banks, insurance companies, fast money hedge funds (always chasing returns, not duration buyers), and of course the Federal Reserve have all been buyers this morning. Volume is better than yesterday but trading flows are still relatively thin. Of course this is bounce predicated off of a rally on the yield curve.
We dont have an MBS volume chart but we can show you what happened in the futures to give you an idea of when the market positioned and repositioned itself this morning...
Between 9AM Case/Shiller data and 10am Consumer Confidence data! :-D
After reaching an intraday yield high of 3.34% The 10yr TSY is trading -0-02 at 102-28 yielding 3.28% CHOP CHOP. "Rate sheet influential" MBS coupons benefitted from this recovery...
The long end of the yield curve is outperforming the short end...THE YIELD CURVE IS FLATTER!!!
Yield Curve
2s/5s: 2bps FLATTER at 134bps
2s/10s: 3bps FLATTER at 228bps
5s/10s: 1bpFLATTER at 94bps
5s/30s: 2bps FLATTER at 168bps
10s/30s:1bp FLATTER at 74bps
Quarter end creates added demand for AAA rated assets...a net positive for the benchmark rates market (FLATTENER TRADES as accounts chase AAA yields greater than 0.00%...btw...thats a joke about the short end of the yield curve). This implies banks will look to do some bargain buying of longer dated TSYs (and MBS) if prices weaken...this means we are once again in the middle of RANGE day...not a trend day. Profit taking and the stock lever remain possible reasons for an alert...however as just stated we expect the range to moderate both buying and selling into month end and quarter end.
For the 10yr, expect selling near 3.27% and buying to take place as yields approach 3.35%. Given the need for duration, yield, and credit quality.... we wouldnt be surprised if the FN 4.5 briefly breaks 101-12 overhead resistance while a floor has been put in at 101-03. 101-07 will serve as intraday pivot point.
Other news...
- In their August monthly summary, FANNIE MAE says the Conventional Single-Family Serious Delinquency Rate rose 23 basis points in July to 4.17 percent;
- FDIC board votes that banks must prepay three years of regular assessments to replenish the FDIC Insurance/BAILOUT Fund. This request for banks to pay fees earlier will help protect the FDIC from having to ask for funding from TSYs/taxpayers. READ MORE
- Dallas Fed President Richard Fisher told reporters after a speech that it would likely be "quite some time" before monetary and fiscal stimulus could be removed given the lack of "muscle tone" in the economy coming out of the deep recession.THAT HELPS THE YIELD CURVE FLATTEN...WHICH IS GOOD FOR "RATE SHEET INFLUENTIAL" MBS COUPONS. HERE IS SPEECH
- At 1015AM the Fed bought $3.545 bn in TSYs maturing between May 2012 and November 2013. $20bn was submitted for purchase. NY FED PRESS RELEASE
- MND Case/Shiller Story
Rates sheets are mixed, some are .250 worse while others are marginally better. If FN 4.5 prices hold near the highs of the day (if TSYs can hold gains)...you might receive a few reprices for the better.
The S&P is trading around 1060, the 23% retracement of the most recent bullish trend cycle in stocks (started on Sept.3).
The dollar index is slowly moving lower, currently +0.17% at 77.183. We are watching for stocks and the dollar to re-connect their negative relationship (DOLLAR WEAKER, STOCKS HIGHER), but hoping equities and the value of the dollar continue to trade independently.
Oil is trading -0.76% at $66.33
MBS Market Alerts
