Recap of Yesterday

  • The rates market rebounded from Monday's sell off, yields are back in the RANGE. MG Discusses in MBS CLOSE
  • At 5pm, 10yr note was yielding 3.453%. 2s/10s curve flatter
  • The FN 4.0 ended the day +0-20 at 98-05 yielding 4.19%. The FN 4.5 headed out the door trading +0-15 at a bid of 100-23 yielding 4.414%.
  • The secondary market current coupon was 4.369%.
  • MBS lagged benchmark TSYs as the rates rally picked up steam...yield spreads were wider as day progressed
  • Treasury sold $44bn 2yr notes. Auction stopped out at 1.02%. Demand was strong, bid to cover ratio at 3.63. Direct bidders were notably aggressive, awarded 26.1% of issuance, much higher than normal. Indirects took 44.5%, Dealers awarded 29.4%
  • Lenders repriced for the better, before, during, and after the 2yr note auction. Mortgage rates improved.
  • Tax Credit Extension PICKING UP MOMENTUM
  • MBA Assembles FHA Council....READ MORE

This Morning So Far...

  • SHANGHAI +0.33%, HANG SENG -1.84%, TOPIX -0.75%, NIKKEI -1.35%, CAC -1.42%, DAX -1.49%, FTSE -1.51%
  • GMAC needs more funding. READ MORE
  • Mortgage Applications Move Lower. Refinance Apps Down 16.2%, Purchase Apps Fall 5.2%. READ STORY. SEE CHARTS
  • 830AM DATA: DURABLE GOODS ORDERS UP 1.00%. Excluding- Transportation, Orders were +0.9%. Ex- Defense, Orders +0.5%. Note the 0.1% decline in vehicle and auto parts new orders...in August this category was +1.6%. This is result of expiration of Cash for Clunkers program
  • Durable Goods data was "on the screws"...right on expectations. However given the slight revision lower of August New Orders, $352.8bn from $352.9bn, and the obvious effects of government stimulus (cash for clunkers), this report favors the bond market rather than stocks (not that fundamentals really matter right now)

Ahead of 830AM data, the FN 4.5 was trading +0-02 at 100-25. After the data, bids moved higher to 100-26+, soon after, as the 10yr FAILED a test of 3.42%, prices fell back to 100-23. However since then bids  are pushing back towards the highs of the day.

Currently the FN 4.0 is trading +0-04 at 98-09 yielding 4.178% and the FN 4.5 is +0-02 at 100-25 yielding 4.406%. The secondary market current coupon is 4.349%. In terms of relative value, the FN 4.5 yield is 96.3 basis points over the 10yr TSY yield.

Leading the way for "rate sheet influential" MBS coupon prices, the 10yr TSY note is currently +0-02 at 101-16 yielding 3.443%.

Looking ahead, the 10yr is facing resistance at 3.42%, then at 3.38%. Overhead support is in place at 3.45%. The 10yr already failed a few attempts at 3.42% this morning.

At  current yield spread levels, if the 10yr rallies to 3.42%, we would expect the FN 4.5 to reach a price of 100-31. If the 10yr touches 3.38% the FN 4.5 would reach 101-08. However, as explained yesterday, "rate sheet influential" MBS prices tend to lag benchmark hedges into rallies, so if the 10yr yield breaks 3.42% resistance and tests 3.38%, we wouldnt expect the FN 4.5 to reach 101-08, but we would expect to see prices cross back into the 101 handle...which would result in reprices for the better.

When looking to stay ahead of reprices for the worse, we would anticipate lenders to consider republishing rate sheets if the FN 4.5 falls to 100-16. At current yield spread levels, +96/10yr TSY yield,  the 10yr would need to break 3.45% and test 3.48%.

New Home Sales Data at 10am. The  Treasury auctions $41bn 5yr notes at 1pm.


MBS, TSY, LIBOR QUOTES