MBS Morning: Have Bonds Sold Off Enough to Catch a Break?

Posted To: MBS Commentary

To buy the dip or not to buy the dip (in bond prices). That is the question faced by traders today as 10yr yields hit the 1.70% technical level in after hours trading yesterday. This potential technical support coincides with the upper boundary of the ongoing trend channel. The day begins with a decent bounce from that level, but we should probably avoid getting too excited about it just yet. Bonds have bigger things to think about than modest technical bounces at long-term highs. While that sort of bounce can inform decent short-term momentum, the overall trend will continue to be dictated by big-ticket items like covid, inflation, Fed rate hike expectations, and curve trading (all of which are intertwined to a large extent). The case count narrative is well known: Inflation expectations haven't…(read more)

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MBS Morning: Have Bonds Sold Off Enough to Catch a Break?
MBS Morning: Have Bonds Sold Off Enough to Catch a Break?

MBS RECAP: Fear of The I-Word

Posted To: MBS Commentary

Fear of The I-Word Today's 5yr TIPS auction met with heavy demand for inflation protection. While that didn't move markets at the time, it nonetheless underscores the heavy inflation concern driving traders to flatten the yield curve and move up estimated Fed rate hike timing. Indeed, Fed Funds Futures are now pricing in the first hike by June 2022. MBS underperformed 10yr yields, but kept better pace with 5yr Treasuries. Data had no impact as the market traded largely on momentum, technicals, and deal-related tradeflows (i.e. corporate bond issuance). Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Jobless Claims …. 290k vs 300k f'cast Philly Fed ………… 23.8 vs 25.0 f'cast Existing Sales 6.29m vs 6.09m f'cast Leading Indicators …0.2 vs 0.4 f'cast Market…(read more)

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MBS RECAP: Fear of The I-Word
MBS RECAP: Fear of The I-Word

Another Day; Another Long-Term High For Rates

Posted To: Mortgage Rate Watch

Mortgage rates haven’t really been able to catch a break recently. This week is shaping up to be one of the worst since March. Since then, only 2 other weeks have been worse and they both occurred in the past month. In and of itself, today’s jump in rates wouldn’t be too troubling, but when added to the existing momentum, the losses are adding up. A conventional 30yr fixed scenario that had carried rates in the 2.75-2.875 neighborhood a month ago is now closer 3.125-3.25%. Making matters more frustrating is the fact that there really isn’t any great, short-term explanation for the incremental damage. Negative momentum is simply embedded, and it has been since the Fed signaled its intent to taper its bond purchases on September 22nd. Around the same time, covid case counts began turning a corner…(read more)

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Another Day; Another Long-Term High For Rates
Another Day; Another Long-Term High For Rates

MBS Morning: The Trend is Not Your Friend

Posted To: MBS Commentary

Considering yields have pushed to new long-term highs on 3 out of the past 3 days, it's safe to say that bonds are "trending" as opposed to flat/sideways. Covid cases are down sharply week-over-week. Econ data continues to be decent enough. And there are no signs that the Fed will forego a tapering announcement on November 3rd. This trend is not your friend. All we can do is stay defensive and wait for clear confirmation that bonds are turning a corner. For now, we're lucky that yields haven't attempted to break up and out of the rising rate channel we've been tracking. It's important, and potentially interesting to clarify what "rising rates" means. The main point of distinction is between nominal yields and "real" yields (those that have been…(read more)

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MBS Morning: The Trend is Not Your Friend
MBS Morning: The Trend is Not Your Friend

MBS RECAP: Sideways to Slightly Weaker After Another Long-Term High

Posted To: MBS Commentary

Sideways to Slightly Weaker After Another Long-Term High 10yr yields hit a 5-month high early in the overnight session and then managed to claw their way back to modestly stronger levels by the start of domestic trading. Amid a dearth of data and actionable headlines, bonds were left to "trade it out." That seemed to go fairly well at first, but yields adjusted back toward the highs of the day after the 20yr bond auction at 1pm ET. Perhaps the more relevant detail is that 10yr yields were never able to make it below 1.62%, even at their best. 1.62% had been a ceiling 3 days ago before becoming a floor yesterday afternoon. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Market Movement Recap 08:39 AM Weaker to start the overnight session with yields hitting multi-month highs of…(read more)

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MBS RECAP: Sideways to Slightly Weaker After Another Long-Term High
MBS RECAP: Sideways to Slightly Weaker After Another Long-Term High

Mortgage Rates Hold Steady Near Multi-Month Highs

Posted To: Mortgage Rate Watch

Mortgage rates began moving off longer term lows in early August and that trend has continued ever since. The September 22nd Fed Announcement (and press conference with Fed Chair Powell) served as a jumping-off point for additional volatility and upward momentum. In contrast, October has generally seen rates rise at a more gradual pace. On several occasions, they’ve merely held almost perfectly in line with the previous day’s levels. Today is just such a day! There were no notable motivations for the underlying bond market today (bonds dictate interest rates). As such, today’s sideways momentum makes sense. That said, it’s worth mentioning that there are different versions of “sideways” when it comes to the financial market. Today’s version was best described as “sideways to slightly weaker…(read more)

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Mortgage Rates Hold Steady Near Multi-Month Highs
Mortgage Rates Hold Steady Near Multi-Month Highs

MBS Morning: Range-Finding With 2 Weeks Until Fed Day

Posted To: MBS Commentary

Today has the dubious distinction of being exactly 2 weeks before the Fed announcement (the one that's likely to contain the official tapering announcement). While tapering seems like a bad thing for rates, the timing is important. The most relevant precedent (2013/2014) suggests that anticipation of tapering is actually what hurts the bond market while tapering itself coincides with rates topping out and beginning to decline. The only question for now is whether the bond market approaches Fed day in a sideways range or in an upwardly-sloped trend channel. There's more of a case to be made for the trend channel recently (in fact, that's really the only takeaway in the chart below). A strong ceiling bounce near current levels could change the outlook, but bonds would need to rally…(read more)

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MBS Morning: Range-Finding With 2 Weeks Until Fed Day
MBS Morning: Range-Finding With 2 Weeks Until Fed Day

MBS RECAP: The Trend is Not Your Friend

Posted To: MBS Commentary

The Trend is Not Your Friend October has been one of those unpleasant months where bonds have several reasons to weaken, few to rally, and where the market hasn't expressed any interest in departing from the logical baseline. In other words, rates are supposed to be rising right now, but they need to be careful not to rise too quickly for a variety of reasons. We're left with a slow motion train wreck of sorts. We know what's happening, and we just have to sit and watch. Could things change? Certainly. There are several reasons they might (even if not all of them are pleasant), but that's a "what if." The logical baseline is an unfriendly trend. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Housing Starts 1.555 vs 1.620m f'cast, 1.580 prev Building Permits…(read more)

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MBS RECAP: The Trend is Not Your Friend
MBS RECAP: The Trend is Not Your Friend

Mortgage Rates Stabilize For Now

Posted To: Mortgage Rate Watch

Mortgage rates hit their highest levels in months yesterday as bonds lost ground at a brisk pace to start the new week. Bonds–specifically mortgage-backed securities (MBS)–are the most important ingredient used by lenders to determine mortgage rates. Bond market weakness (i.e. “losing ground”) means that bond PRICES are falling. Bond prices vary inversely with bond yields, and yield is just a fancy term for “rate.” In simpler terms, bond sellers had to offer higher rates of return to attract reluctant buyers. But why are bonds struggling? This is actually a general trend for bonds and rates for just over a year as the economy battles back against covid. The middle of 2021 was a bit of an aberration as the delta variant brought new pandemic-related uncertainty to financial markets. But now…(read more)

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Mortgage Rates Stabilize For Now
Mortgage Rates Stabilize For Now

MBS Morning: The Shift Continues, Even If You Can't See It

Posted To: MBS Commentary

It's an interesting time for rates because the market collectively knows where it should be going (i.e. toward even higher rates), yet seems to be dragging its feet in getting there. That's not to say rates aren't higher in the past few weeks, but 10yr yields continue to avoid a decisive break above the high yields seen on Friday the 8th. What about other Treasury maturities though? A quick glance at the 30yr and 5yr helps bring everything into focus. Translation: 5yr yields are doing a half of a point worse than 30yr yields in the past 5 months (in fact, these are the highest 5yr yields since before the pandemic). What's up with that? 5s are uniquely positioned to suffer in this environment. They're long-term enough to share some concerns with 10s and 30s, but short-term…(read more)

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MBS Morning: The Shift Continues, Even If You Can't See It
MBS Morning: The Shift Continues, Even If You Can't See It