MBS RECAP: Fitting End To Worst Month in Modern MBS History

If we consider the worst 5-week batches of time for production MBS, and even if we allow late 2010 to combine the worst 5 weeks spanning November and December, May 2013 is still 12 ticks worse, give or take.  That's insane!  Is it just me or do the past 5 weeks not feel as abusively awful as late 2010?  If May seemed any more tolerable, maybe it had to do with the fact that rates began the month within spitting distance of all-time lows and at their worst just ebbed into the 4% zone.  Too, perhaps the fact that we got a starkly contrasting Jobs Report on May 3rd helped start the month off with a cautionary bias.  Whatever the case, today was a fitting end.  It had all the key ingredients...  Seemingly serene morning leading to a massive mid-day sell-off and afternoon volatility in abundance.  Fannie 3.0s end the month just perfectly 400bps off May 1st levels.  10yr yields shot 46.2bps higher!  Everything about this most recent week and the week ahead continue to suggest a well-traveled, volatile range leading up to NFP, with potential to push the push the boundaries of weakness afterward, or head back into May's trading range.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

Pricing as of 4:04 PM EST

Afternoon Reprice Alerts and Updates

Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.

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3:25PM  :  ALERT ISSUED: Most PM Losses Recovered With Sneak-Attack of Month-End Buying

Month-end index buyers were lurking in far greater numbers than markets expected. We'd given up on seeing this level of sponsorship by the time the last alert was out. But a few minutes before the books were closed on bond market trading for the month of May (which is 3pm for most participants), buyers finally came out of the shadows and unleashed their fury (which, on any other month-end session, would be fairly paltry).

Given the fact that Treasury flows were actually net negative until that point (not at all common for month-end), it didn't take much to move the needle and 10's have rocketed back to the 2.15% neighborhood.

Fannie 3.0s are back up to 100-19, which is still a fairly depressing 14 ticks weaker on the day. But hey... "less bad" is an improvement in this case. Volume and trading levels look to be evening out in the 2.14-2.16 area in 10s. MBS may be able to hang on to most of the recovered afternoon losses.

2:34PM  :  ALERT ISSUED: More Reprice Risk As MBS Melt Away in True May 2013 Fashion

Assume the position.

In the month of May, that's mostly been the fetal position as we cower under our desks while negative reprices bombard email inboxes. What better way to spend the last few hours of the month than with more of the same?!

They're probably on the way soon with MBS leading to new lows at 100-07 (chart says we technically hit 100-00, but we're actually TRADING at 100-07 now as opposed to seeing errant quotes and market making). That's 26 ticks down on the day.

Catching the falling knife of the rates sell-off continues to be painful. 10's are testing 2.20 again, but MBS are underperforming significantly. Stocks are trailing off as well, roughly 10 pts off highs in S&P. Unlike some instances where month-end buying "saves" us, today looks like it will be quite the opposite, and is running out of time to suggest otherwise.

1:16PM  :  ALERT ISSUED: Support Breaking. Reprice Risk Outlook Getting Cloudy

We were in the interesting position earlier of experiencing most of the day's losses before most lenders were out with initial pricing, making for conservative rate sheets when they finally came out, and scattered positive reprices into the noon hour. Selling into the PM hours introduced some risk of negative reprices again, but support had been holding.

SUPPORT IS NOW BREAKING, and negative reprice risk is back on the table for all parties involved! We might see some wild swings here on month end. Volatility is the only guarantee.

12:52PM  :  Getting Dicey Again At Lunch Time, but Paradoxically Supportive

Traders went to lunch and forgot to leave any instructions to buy bonds. As feared/expected, we're definitely NOT seeing the traditional month-end buying kick in this afternoon (though it can arrive later in the afternoon). For now, sellers continue to set the tone, and after letting prices run a bit higher after the initial sell-off, have let yields run right back up to 2.17's in 10yr Treasuries.

MBS haven't fared much better and at 100-17 are back near their lowest points of the day. In a weird way, if these weak levels hold as support for a second time here, it could be a positive sign for the afternoon. It's somewhat of a paradox to consider selling pressure to be positive, but as long as we hold here for the next 20 minutes, we have a decent chance of making it back to noon levels by the close.

Live Chat Featured Comments

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Steve Chizmadia  :  "REPRICE: 2:49 PM - Pinnacle Worse"

Tom Schwab  :  "REPRICE: 2:39 PM - Flagstar Worse"

Matthew Carver  :  "I second that...May, you can go now!"

Paul L. Martin  :  "Bring on JUNE!"

Tom Bartlett  :  "Thank God it will be June when we next meet!"

Christopher Stevens  :  "still can't lock at Wells"

Hugh W. Page  :  "This sideways, down, sideways down, ,sideways down, pricing is disconcerting. Like a waterfall....."

Nate Miller  :  "REPRICE: 2:17 PM - Caliber Funding Worse"

Eric Franson  :  "REPRICE: 2:15 PM - Wells Fargo Worse"

Rob Clark  :  "30 year only."

Rob Clark  :  "REPRICE: 1:54 PM - Provident Funding Worse"

JRS  :  "REPRICE: 11:19 AM - USBank Worse"

Brent Borcherding  :  "Yeah, it's silly that someone who cares enough to ask about a lower rate should get it, and when someone doesn't they don't."

Mike Nondarakse  :  "CFPB is all about data... If floating down borrowers causes some (i.e. protected classes) to be excluded from receiving the float down, then that's where the fair lending issue may lie."

Gus Floropoulos  :  "REPRICE: 11:07 AM - PHH Worse"

Bill Barham  :  "We have the rate protection with the float down option and are encouraged to sell to all purchase clients."

Ken Crute  :  "so not worried about the guy that got the float down, its the 1 that didn't that the CFPB is here to rescue "

Tom Schwab  :  "I don't agree, but CFPB lawyers don't get we are not making look a like widgets every 30 days"

Tom Schwab  :  "google it, MG had reference to a discssiuon a few weeks ago. Something about if you offer it to one you must offer to entiure pipeline, not just customers that request it. Secondary desks don't love that."

Michael Owens  :  "not sure how lowering a client's locked rate is an issue if it benefits then in the long run. If it is then chalk it up to another DUMB rules interpretation"

Ken Crute  :  "I guess if you float 1 down you need to float them all down? maybe? "

Ken Crute  :  "how would a float down violate CFPB rules? "

Michael Owens  :  "I don't know if that's correct. some offer with no written policy. other have a policy and they are banks"

Brent Borcherding  :  "If so, another win for the consumer!"

Tom Schwab  :  "Companies that offer float downs are companies yet to talk to CFPB. I think float downs are endangered species due to fair lending interpretation."

Michael Owens  :  "exactly why a float down policy is good to throw out there. won't capture all of the gains, but locking is insurance against what we've seen in May. I would rather miss the lowest rate, than watch my rates go up .625% in a month."

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