Tuesday, May 31, 2011

Market UpDate

On Friday, mortgages underperformed swaps as selling from money managers materialized late in the session and pushed the basis (the yield difference between MBS and swaps) wider. Originator selling totaled just over $1.25bln during Friday’s abbreviated trading session. In terms of dollar prices, the FNCL (30yr) 4.0s in June were -8/32 (100-19) and the FNCI (15yr) 4.0s in June were -4.5/32 (104-03). In agency swaps, Gold/Fannie swaps traded modestly lower (in Fannie’s favor) last week as real money buying in Golds subsided a bit. Currently, the Gold/Fannie 4.0 and 4.5 swaps are trading at -3.75/32 and -3.625/32, respectively.

Originator lock activity was reported to be mixed last week. However, on average it seemed that locks were mostly flat to slightly higher week over week. The pick up in volume that is normally associated with a rally like the market saw last week was probably tempered somewhat by borrower’s focus on the upcoming holiday. The 30yr primary rates remain in the 4.625 – 4.75% range. The primary/secondary spread (the difference between primary rates and the interpolated MBS par coupon) is currently at ~70bps, which is slightly tighter week over week but still within the recent range.

Treasuries were mixed on Friday as the 5-year was +2/32 (1.717) and the 10-year was -4/32 (3.074). In terms of economic releases, this week’s calendar is heavy and will be highlighted by the May employment report that will be released on Friday. Today the S&P/Case-Shiller home price index for March will be released and is expected to show ~-0.24% decrease month over month, which would be in line with February’s decline. In equities, futures are pointing markedly higher following gains in Europe. European indices have been trading higher today as concerns surrounding Greece’s sovereign debt abated following an announcement from EU leaders that a new aid package for Greece will be decided upon by the end of June. Right now, S&P futures are +12.4 and Dow futures are +107.0.

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