MBS Day Ahead: Bond Buyers Sitting on Hands; Which MBS Coupon Now?

Posted To: MBS Commentary

We talked about momentum indicators being 'oversold' yesterday–a possible prelude to a friendly bounce in bonds. If that narrative is going to play out, it's running out of time very quickly. There was some potential for a positive outcome early in the overnight session, but as the trading day progresses, bonds are moving steadily back toward their weakest levels. Those with the strongest stomachs can still hold out hope that 10yr yields have temporarily topped out somewhere under 1.33%, but all bets are off if that ceiling breaks today (and we're only 2bps away at 9am). If the pace of bond market weakness has caught you off guard in 2021, you're not alone. Many analysts and traders are struggling to justify current levels. In their defense, it's very easy to get caught…(read more)

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MBS Day Ahead: Bond Buyers Sitting on Hands; Which MBS Coupon Now?
MBS Day Ahead: Bond Buyers Sitting on Hands; Which MBS Coupon Now?

Yes, Mortgage Rates are MUCH Higher This Week

Posted To: Mortgage Rate Watch

Volatility has returned to the mortgage market in grand fashion this week with many lenders quoting rates that are as much as a quarter of a point higher than they were last week. That means if you were looking at something in the 2.75% neighborhood on Friday, it could be 3.0% today. What gives? The upward pressure is nothing new , really. It has existed in the broader bond market since August, but only recently began spilling over to the mortgage market. We’ve been discussing the increased risks of such a spillover in the event of a sharper bond market move and yesterday brought just such a move. Today was much more docile by comparison, but it didn’t do anything heroic to push back against yesterday’s weakness. Still, there could be some promise of stability in the fact that the bond market…(read more)

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Yes, Mortgage Rates are MUCH Higher This Week
Yes, Mortgage Rates are MUCH Higher This Week

MBS RECAP: Looking For Silver Linings Despite Falling Sky

Posted To: MBS Commentary

Looking For Silver Linings Despite Falling Sky After a huge day of snowball selling yesterday, bonds started out in weaker territory today. Hugely strong Retail Sales data and sharply higher inflation told rates to keep on rising, but they quickly refused. Several hours later, a decidedly weak 20yr bond auction made the same suggestion (i.e. higher rates), but yields continued holding modest gains. As far as days with intraday yields hitting their highest levels in almost a year are concerned, that's about as much resilience as we could hope for. Tomorrow will be critical in confirming or rejecting today's defiant show of support. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Retail Sales 5.3 vs 1.1 f'cast, -1.0 prev Producer Prices (Inflation, y/y) 2.0 vs 1.1 f'cast,…(read more)

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MBS RECAP: Looking For Silver Linings Despite Falling Sky
MBS RECAP: Looking For Silver Linings Despite Falling Sky

MBS Day Ahead: The Bouncing Game and How To Play It

Posted To: MBS Commentary

Bonds have been hammered by selling pressure in 2021–especially in February. When it comes to many parts of the financial market, and especially bonds, strong momentum in one direction builds a case for a technical bounce in the other direction. In other words, the more bonds sell, the more traders consider them "oversold," and the greater the odds become of at least a day or two of gains. We saw an example of such a bounce last week, but it didn't last. Now that bonds have embarked on another sharp selling-spree, how soon is too soon to look for the next technical bounce? First off, let's check in with the trend and yesterday's big breakout. From a technical standpoint, this is not good. I mean… it hasn't BEEN good to be operating in a fairly relentless uptrend…(read more)

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MBS Day Ahead: The Bouncing Game and How To Play It
MBS Day Ahead: The Bouncing Game and How To Play It

Rates Surge; Time To Adjust Your Mortgage Game Plan

Posted To: Mortgage Rate Watch

Recovery prospects, renewed focus on stimulus, inflation concerns, a brighter covid outlook, etc… All of these are reasons for an ongoing, gradual trend toward higher rates in 2021 (i.e. general bond market weakness) but none of them really explain why the bond market had its worst day in months today specifically. Still, pundits are pointing to the laundry list of usual suspects to explain the move. In their defense, that’s all anyone can really do on a day like today. At a certain point market momentum becomes its own justification and bond prices snowball to lower and lower levels. When bond prices fall, rates rise–a fact which is abundantly clear in comparing today’s rates to those seen late last week. The average lender is quoting conventional 30yr fixed rates that are roughly 1/8th…(read more)

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Rates Surge; Time To Adjust Your Mortgage Game Plan
Rates Surge; Time To Adjust Your Mortgage Game Plan

MBS RECAP: Panic In The Bond Market

Posted To: MBS Commentary

Panic In The Bond Market It's no mystery that longer-term Treasury yields have been trending higher since August (it's all we can talk about at times) and that mortgage rates have largely been able to ignore that trend. But that blissful ignorance is increasingly hard to maintain–a fact that hits home on days like today. For a variety of reasons, today was a big bad day for Treasuries. As feared, MBS were painfully unable to outperform, and the same can be said of mortgage rates compared to MBS prices. Bottom line: rates rose sharply. Multiple lenders repriced for the worse. This is part of an ongoing, widespread reevaluation of economic and monetary outcomes as told by the bond market. There's no guarantee that things get better before they get worse. Econ Data / Events Fed MBS…(read more)

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MBS RECAP: Panic In The Bond Market
MBS RECAP: Panic In The Bond Market

MBS Day Ahead: Selling Gets Serious; Yields Near Post-Covid Highs

Posted To: MBS Commentary

Last week ended with snowball selling in the bond market. Given the approach of a holiday weekend, there was a chance that the weakness was overdone and that we'd see a bounce back today, but it didn't take long for those hopes to be crushed in overnight trading. This is the kind of bond market weakness that forces analysts to find/amplify root causes after the fact, because there really hasn't been a strong case for this much selling (even if there's a well-understood case for steady selling in general). To be clear, evidence in the "well-understood case" is as follows: Plummeting covid case counts Businesses weathered the Dec/Jan surge much better than the initial lockdowns in the Spring Vaccine distribution improving Economic data at home and abroad has been resilient…(read more)

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MBS Day Ahead: Selling Gets Serious; Yields Near Post-Covid Highs
MBS Day Ahead: Selling Gets Serious; Yields Near Post-Covid Highs

MBS RECAP: Snowball Selling in Bonds After Mid-Week Rally Fizzles

Posted To: MBS Commentary

Snowball Selling in Bonds After Mid-Week Rally Fizzles We were looking for a friendly correction in bonds this week and it arrived on Tuesday and Wednesday. Those sorts of corrections run the risk of being 2-day affairs and that is unfortunately shaping up to be the case this time around (a risk we discussed yesterday due to the modest weakness). Today's otherwise inexplicable selling pressure confirms that the mid-week rally was just the bond market's way of taking a breath before singing the next verse of the selling song. There is some small chance that traders are just closing out positions ahead of a 3-day weekend, but that's not the kind of possibility you want to bet on from a rate strategy standpoint. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Consumer Sentiment…(read more)

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MBS RECAP: Snowball Selling in Bonds After Mid-Week Rally Fizzles
MBS RECAP: Snowball Selling in Bonds After Mid-Week Rally Fizzles

MBS Day Ahead: As Feared, Bond Sellers Say "Game On"

Posted To: MBS Commentary

As of Monday, bonds had closed at higher yields for 8 straight days. Such streaks beg for a correction. They rarely last longer. The correction became "official" on Wednesday with a decent 10yr Treasury auction helping to confirm. But even on that same day, we warned that the gains were underwhelming at that these sorts of obvious corrections often happen in the sort of 2-day bursts seen on Tue/Wed. Sure enough, yesterday was red day for bonds and risks rapidly increased that bond sellers would be saying "game on" again. In addition to the Wayne's World scene, the chart above shows a zoomed-in section of the prevailing uptrend (yellow parallel lines containing almost all 10yr movement since August 2020). The most basic implication of the "game on" trading is…(read more)

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MBS Day Ahead: As Feared, Bond Sellers Say "Game On"
MBS Day Ahead: As Feared, Bond Sellers Say "Game On"

MBS RECAP: Friendly Bounce May Already Have Run Its Course

Posted To: MBS Commentary

Friendly Bounce May Already Have Run Its Course Friendly bounces after strong selling sprees are slightly more likely to play out over 2-day time frames. That was the risk heading into today after Tuesday and Wednesday saw Treasury yields close lower for first back-to-back days since mid-January. And as far as Treasuries are concerned, the 2-day rule is in effect. Either that, or we seeing extremely cautious trading ahead of the 3-day weekend. Thankfully MBS outperformed, but most mortgage lenders priced defensively nonetheless. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Jobless Claims 793k vs 757k f'cast 812k prev Market Movement Recap 08:42 AM Very light trading overnight with Asian markets closed for lunar new year. Slightly weaker by the start of European hours and flat since…(read more)

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MBS RECAP: Friendly Bounce May Already Have Run Its Course
MBS RECAP: Friendly Bounce May Already Have Run Its Course