MBS RECAP: Strong Session Leaves MBS Green After The Roll

Prices below are for July MBS as of 4:05pm.  Just after 5pm, those prices dropped abruptly for Fannie and Freddie 30yr Fixed MBS (collectively "Class A").  This wasn't due to market movement, but rather to the monthly Class A settlement where July's batch of MBS pools are sealed up and prepped for delivery and August coupons take over as the new representative of "MBS Prices."  There was no drop in price because August prices didn't drop at the close and lenders have been able to sell MBS for August delivery for quite some time.  We often refer to this process as "the roll."  After today's roll, Fannie 4.0s remained at 103-08, still 5 ticks into positive territory.  The morning's economic data was of little consequence to the solid session already underway following yesterday's late Bernanke comments.  Some mid-day weakness crept in ahead of the 30yr Bond Auction, but we were treated to a relief rally afterward as predicted by MBS Live cornerstone Jeff Anderson on Tuesday (additional  kudos to VB, CK, and SJ for mentioning it throughout the week in the MBS Live chat).  This is not an infrequent occurrence following the full completion of several days of Treasury auctions as markets no longer have to bid on new Treasury supply.  

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 4:05 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.

---

3:02PM  :  MBS Back Near Highs, Reprice Risk Tilted Positively

It seems that most of the lingering negative reprice risk has worked its way through the market during the very weird "mixed" reprice environment of the past few hours. Indeed we saw several positive and negative reprices come through since then.

This is just a quick heads-up to say that the odds are favoring positive, if anything at the moment. The caveat is that we can only comment on risks as they relate to MBS Prices. Lenders' individual balance sheet considerations heading into Fannie/Freddie settlement can occasionally result in a non sequitur reprice or two, and there's no way to predict those (the only defense is past experience with the lender in question).

Fannie 4.0's are up 13 ticks on the day at 103-16 and 10yr yields are down to 2.572--near their lows and right in line with 8am opening levels.

2:14PM  :  ECON: U.S. posts $117 billion budget surplus in June

- Surplus $116.5 Bln vs $39.5 bln consensus
- YTD Deficit $510 bln vs $904 bln same time last year

(Reuters) - The U.S. government posted a budget surplus in June, the latest sign of rapidly improving public finances that could reduce the urgency in Congress to strike a deal to raise the nation's limit on borrowing. Rising tax revenues, public spending cuts and big payments to the Treasury from state-backed mortgage firms helped the government take in $117 billion more last month than it paid out, the U.S. Treasury said on Thursday. Analysts polled by Reuters had expected a smaller surplus of $39.5 billion. June's surplus was the largest for that month on record.

1:27PM  :  ALERT ISSUED: Prices Bouncing Back After Auction, but reprice risk is MIXED

The 30yr Bond Auction was relatively well-received, at least in terms of the yield award coming in slightly under expectations. Demand was on the weak side, but markets have grown to expect that to some degree given recently weaker bid-to-cover ratios. All in all, markets were left with the sense that the morning weakness did an adequate job of preparing for the auction.

As such, we now have the beginnings of the "post auction relief rally" that sometimes follows the last round of supply on auction weeks. Fannie 4.0s are back up to 103-11, 8 ticks in the green on the day. Negative reprice risk is drying up (though a few have trickled in late, and it continues to be a risk for some lenders).

Positive reprice potential is another matter. We may see a few of those as well! (not a common situation). Keep in mind today is settlement for Fannie and Freddie 30s. Lenders may have different goals with their pipelines. Whatever the case, if prices hold these gains or improve, positive reprices will continue to be possible, but not guaranteed.

12:38PM  :  ALERT ISSUED: Weakness Persists Ahead of Auction; Reprice Risk Increases

Fannie 4.0s have nearly given back all their gains and are now at 103-04 on the day. 10yr Treasuries are testing their highs at 2.6117 as the impending 30yr auction has bond markets pricing defensively in general. Lenders who haven't yet repriced for the worse today are at an increased risk as these levels persist.

11:43AM  :  ALERT ISSUED: Negative Reprice Risk Increasing as MBS Falls to Low of Day

FNMA 4.0 just fell to the lows of the day at 103-07. A reprice for the worse is very possible.

Live Chat Featured Comments

---

Adam Shelton  :  "REPRICE: 3:57 PM - Stearns Lending Better"

John Rodgers  :  "We’ve really come to a crossroads. Everyone is screaming that GDP will ramp up by the end of ’14. Stock pickers are frothing at the mouth. What do I see? Record part time employment, weekly jobless claims heading higher and “individual” companies with rising inventories. I don’t think we’ll see 1.60 again but I do think we’ll see 2% by year end. With 1% GDP forecasts in the near term it wouldn’t take much to push us into a deflationary period which is WAY worse than inflation. But, what do I kn"

Michael Brasher  :  "REPRICE: 3:25 PM - Caliber Funding Better"

Tom Schwab  :  "REPRICE: 3:22 PM - Flagstar Better"

Brent Borcherding  :  "REPRICE: 2:55 PM - Pinnacle Better"

Rob Clark  :  "REPRICE: 2:54 PM - Provident Funding Better"

Tom Schwab  :  "REPRICE: 1:49 PM - AMC Better"

Brent Borcherding  :  "REPRICE: 1:46 PM - Freedom Mortgage Worse"

Rob Clark  :  "REPRICE: 12:33 PM - Stearns Lending Worse"

---