The mortgage-backed securities market seemed to take Fed Chairman Alan Greenspan's further criticism of the GSEs in stride last week, as issues of supply and a big corporate calendar proved to be far more important factors affecting spreads.
"There was a little bit of widening pressure on the massive corporate supply coming this month," said Art Frank, head MBS researcher at Nomura Securities. However, by the end of last week, mortgages were doing better than the agency market, and reaction to a Wall Street Journal article - outlining Rep. Richard Baker's (R., La.) commitment to pass at least some of his GSE reform before the end of year - was hardly noticeable.
"Baker has this compulsion to continue to bang his head against the wall about this topic," said another MBS veteran. "It reminds me of the joke about the kid who says he keeps on banging his head against the wall because It feels so good when I stop'."
By the end of the week, it was more about corporate and asset-backed securities than about mortgages and Treasuries. In corporates, about $3.4 billion in investment grades were priced and there is another $500 million pending, and in ABS $2.8 billion came in three names. Despite the competition, mortgages held in with light up-in-coupon buying by money managers.
Near close, 30s were outperforming by 1.4 ticks, helped by Treasury weakness, while 15s were underperforming by 1.6 ticks in thin flows.
Mortgages were about in-line to competing spread sectors. Thirty-year MBS were mixed with discounts one basis point wider, and currents and premium coupons unchanged to slightly tighter, respectively. Fifteens were slightly wider. Swaps and corporates ended last week relatively unchanged, while agencies were 0.5 to 1 basis point tighter in 5s and out a similar amount in 10s.
Additionally, a large bid list surfaced early in the week from a midwestern bank. The list consisted on discount sequential paper with extension risk.
"There are lots of big bid lists circulating," said Nomura's Frank. "Banks have decided to significantly lighten up on their collateralized mortgage obligation portfolios, particularly discounts, and then take some hits selling them below par to reallocate to higher-yielding assets."
Analysts also said that mortgage banking sales have slowed, which is yet another factor keeping mortgage spreads stable - not to mention the fact that the market is past its seasonal peak of home purchases.
As for the prepayment data that came out (see story page 6), Fannie Mae and Ginnie Mae numbers are expected to be faster, mainly because August had 23 business days, up from 20 in July; also, mortgage rates came down from mid-May to mid-June, so people who bought houses in June reacted to the rates by paying off their loans in August.
There was another agency CMO bid list late last week, with a current and original face of $141.7 million. The weighted average lives on the list ranged from 9.5 to 11 years. The underlying collateral was seasoned 15, 20 and 30 MBS. The 6.5 x 6.5 bonds were talked at +141 to 145 basis points and the 6x6 bond was talked at +135 basis points.
In other news, Congress returned to work last Tuesday for one final month-long session. This Tuesday, Rep. Baker will conduct a GSE Roundtable discussion to develop a consensus on GSE Reform. The Republicans and the White House are trying to compromise on Bankruptcy Reform, and there is still a ways to go on swaps regulation.
Primary CMBS Expected to Soar
The commercial MBS sector is gearing up with three issues premarketing; pricings are expected next week. The $898 million Comm 2000 C-1 (see page 7) is anticipated this Tuesday, according to sources. On Wednesday, BACM 2000-1, a $771 million hybrid, is expected to price. The five-year, triple-A tranche is talked in the 28 basis point area and the ten-year, triple-A is in the 39 basis point area. And this Thursday, MSDW C 2000 in the amount of $598 million, is expected to price.