4:07PM : MBS Outperform in Choppy Session. Headlines Lack Direction
For the third day in a row, intraday price volatility kept mortgage rate watchers on their toes. The Fannie 4.0 MBS coupon bounced around an 11/32 range and even jumped from one end to the other, twice! While this forced us to issue multiple directional warnings, only scattered reprices for the better were reported… most of which were the usual quick trigger types like Provident and FAMC. Looking back at the past 24-hours, we’ve had to deal with a lot of letdowns. The headlines we were expecting to make an impact on the markets, failed to do so. After a vote of confidence passed uneventfully last night, Greek lawmakers are now free to enact aggressive austerity measures. This should’ve given equity markets a boost and help tighten up European debt spreads, but it didn’t. The market still believes Greece is likely to default on its debt. Then came the FOMC Statement today. The Fed confirmed a slower than expected economic recovery but said we should anticipate a pick-up in the second half of the year. The Committee also says recently rising inflationary pressures are short-term in nature. No hints on whether or not another Quantitative Easing package is in the works were given. But Ben did remind us that the Fed is operating under a larger than normal amount of uncertainty, and that the Board will react appropriately as new developments are observed in economic data. This leaves the door open for anything. Both stock and bond markets reacted unfavorably as headline news failed to motivate directional flows. This does not reflect a particular bias in the marketplace as much as it illustrates short-term strategery at time when the majority of investors are sitting on the sidelines waiting for new guidance (lack of liquidity). Mortgages did outperform benchmarks though, on what we might describe as a combination of bargain buying and speculative “strategery”. The bad news is, MBS buying occurred in light volume. There just wasn’t much conviction in the move.