Recap of Yesterday

  • Consumer debt outstanding fell $3.5bn in October, much less than the $9.3 billion decline economist were expecting. Revolving credit (credit cards) fell $6.95 billion while non-revolving credit, (car, boat, education loans) outstanding rose $3.44 billion.
  • Three ex-New Century execs charged with Fraud. READ MORE
  • AmTrust stops taking locks. READ MORE
  • Berliner discusses The Option Arm Recast Time Bomb . READ MORE
  • October prepayments for Fannie and Freddie fixed-rate pools reversed the decreasing trend of the past 3 months and increased - Ginnie Mae I prepays increased but Ginnie Mae II decreased. Fixed-rate issuance decreased for all 3 agencies.
  • Freddie 30yr Gold CPRs increased 1.7% to 13.6%CPR, while 15yr Gold CPRs increased 1.5% to 14.4%. Fannie Mae 30yr were up 2.2% to 15.4%CPR and 15yr up 1.6% to 14.6%.  Ginnie Mae I 30yr prepays increased another 1.7% CPR to 18.9%, Ginnie I 15yrs were up 0.6% to 13.1% CPR. Ginnie Mae II CPRs decreased - Ginnie II Jumbo 30yrs were down 2.8% to 22.8% CPR, while Ginnie II 15yrs dropped 1.2% to 12.4% CPR.
  • Freddie fixed-rate issuance decreased another $4.7B to $24.6B, Fannie Mae issuance decreased $19.5B to $30B.  Ginnie Mae I issuance decreased by $3.9B to $18.2B, while Ginnie II issuance dropped to less than half of September, decreasing $8.5B to $6.4B.

The yield curve steepened yesterday as shorter dated TSY coupons benefited from Bernanke comments,  reigning in any excess/unwarranted NFP optimism in the marketplace. Bernanke said the US economy had some way to go before a recovery was self sustaining. He expected "modest growth" in 2010. Significant headwinds include tight credit conditions and a weak labor market.

After selling stopped out at 3.50% on Friday, overnight buying pushed 10s to 3.42% resistance yesterday. Most of the "rate sheet beneficial" directional assistance in benchmarks came from Asia in the overnight session. However, demand was focused in the belly of the yield curve. Volume was below average as only 635k 10 yr contracts were traded.

The FN 4.0 ended the day +0-11 at 99-05 yielding 4.09% and the FN 4.5 went out the door +0-09 at 101-26 yielding 4.279%. The secondary market current coupon ended the session at 4.185%. The CC yield was 75bps over the 10yr TSY yield and the 61bps over the 10yr swap rate.

Dealers report a shortage of MBS (still). Supply continues to be below average as buyers greatly outnumbered sellers heading into year end. This is a function of a generally slow primary mortgage market (loan production slowdown) and the Fed's well-timed participation in the MBS market. This supply/demand dynamic has made agency MBS a favored choice for year end P&L  "window dressing.

So Far Today

  • Stocks are lower around Earth. SHANGHAI -1.06%, HANG SENG -1.18%, TOPIX -0.25%, NIKKEI -0.27%, CAC -1.74%, DAX -1.94%, FTSE -1.73%
  • NY Fed President William Dudley spoke last night...pretty much re-stating Bernanke's feelings. Here are a few excerpts: U.S. ECONOMY STILL WEAK, UNEMPLOYMENT RATE "MUCH TOO HIGH", CIRCUMSTANCES UNDERPIN FOMC'S COMMITMENT TO KEEP RATES LOW FOR EXTENDED PERIOD, FED WILL BE ABLE TO EXIT SMOOTHLY WHEN TIME COMES, 2010 TO BE MORE MODERATE GROWTH PERIOD, CREDIT STILL STRAINED
  • WSJ: Moody's Investors Service says the U.S. and U.K. must prove they can whittle down their ballooning deficits to avoid threats to their triple-A credit ratings. READ MORE

Stock futures are lower, the dollar is stronger, oil is cheaper, gold is less expensive, and interest rates have returned to pre-NFP price levels!

Rate sheet influential MBS coupons are starting out the session in FACEMELTING status.

The FN 4.0 is +0-18 at 99-23 yielding 4.035% and the FN 4.5 is +0-14 at 102-08 yielding 4.225%. The secondary market current coupon is at 4.064%. The CC yield is +70bps over the 10yr TSY and +56bps over the 10yr swap rate. YIELD SPREADS ARE  TIGHTER. Major facemelter on all valuation fronts.

Yay...every offer gets lifted!

This is all occurring with enough volume to feel comfortable with the gains. Rate sheet rebate = BETTER.

$40 billion 3s at 1pm