MBS RECAP: Snowball Buying As Fedspectations Team Up With Euro-Drama


Two of our favorite made-up terms joined forces today to carry MBS to yet another all-time high and 10yr yields to the high 1.6’s!  The day looked as if it would be a deceleration in terms of volume and volatility this morning, but we turned out to be quite wrong about that, although rates moved in the right direction for MBS watchers.  The culprits were overnight headlines in Europe that noted a similar “run on the bank” going on in Spain as the one just seen in Greece.  Even if the news and events themselves weren’t responsible for subsequent all-time lows in German Bund yields, they certainly reminded investors that there are bigger fish to fry regardless of how Greece plays out.  Then there was the Philly Fed data, which in and of itself, isn’t cause for 1.70% 10yr TSY yields, but when we have the FOMC standing by to stimulate “as needed,” the progressively weaker data perhaps has more than a few investors thinking that the June FOMC announcement could be a little more bond-market-bullish if recent trends simply hold steady, let alone accelerate.  

2:05PM  : 
MBS Continue Taking Out Record Levels As Duration Grab Is On!
It doesn’t seem like we get to talk about snowball buying nearly as much as snowball selling, but here ya go! Snowball buying in bond markets and unlike most reasonably quick-paced bond market rallies, MBS are doing a decent enough job keeping pace with Treasuries in this one. As a result, Fannie 3.5’s have taken out previous record highs on several occasions today.

Fannie 3.5’s are currently 7 ticks higher on the day at 104-20. 3.0’s are seeing a small increase in activity, so we’ll mention them as well: up 12 ticks at 102-04 (please note, they accounted for only about 1/35th the TBA volume of 3.5’s y’day). Meanwhile, 10yr yields are down almost 5bps at 1.7107. Previous record lows for modern economic history are at 1.674.

Traditionally, such price improvements are grounds for positive reprices in mortgage land, and although we might see a few, we’d continue to expect them to be scarce and small as lenders have little incentive to rapidly improve rate sheets given the current volume of refi activity (among other things).

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