MBS AFTERNOON: Range Tightens as Trading Slows
The FN 4.0 is currently -0-03 at 98-03 yielding 4.196% and the FN 4.5 is trading -0-04 at 100-22 yielding 4.418%. The secondary market current coupon is 4.374%.
Here is a look at the FN 4.5 week over week chart...
When looking for directional guidance we turn towards our benchmark big brothers with a comparison to the 10yr TSY note.
Trading has been slow in benchmark TSYs today with much action based on a late week retracement in equities (sell off). In terms of intraday pivot points and high volume marks, the 10yr has lost momentum into rallies as yields approach 3.45% while market participants turned bargain shoppers as yields crossed over 3.48%. For the most part a tight range has held between 3.46 and 3.47 all day.
In relation to "rate sheet influential" MBS coupons, the FN 4.5 yield is 95.4bps over the 10yr TSY note, slightly wider in comparison to 8:45am levels. This is normal spread "rates rally" widening as MBS prices have ticked off the lows reported at the open of the trading session. (Function of negative convexity and a slowing of MBS price appreciation into benchmark rate rallies).
That said, we expect the 10yr to close near 3.47% which implies the FN 4.5 would end the week around 100-20...based on that assumption reprices for the worse are not a concern, however because trading is slowing from already sluggish activity levels and conditions are turning illiquid, a random event, perhaps a late day bounce in stocks, may pushed the 10yr over 3.48% which would result in falling MBS prices.
Eh....either way, unless there is huge back up in rates, we dont think lenders are preparing for a late afternoon reduction in rebate. But I still feel the need cover my outlook with the "ITS FRIDAY AFTERNOON, ANYTHING CAN HAPPEN" excuse. Haha :-D
WHERE DO YOU THINK THE FN 4.5 ENDS THE DAY? (no not at the bar. what price?)
MG asked for feedback in the MBS MORNING post. Keep asking questions. We will try to address in the CLOSE.
Also, I published commentary on Existing Home Sales. I pointed out a few observations that you might find interesting. If you are worried about the future of the housing market, please read and give your personal perspective.