MBS MORNING: Wary of Stock Lever and Rates Profit Taking

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The FN 4.0 is -0-01 at 100-09 yielding 3.98% and the FN 4.5 is currently +0-00 at 102-16 yielding 4.198%. The secondary mortgage market current coupon is now 3.96%. The CC yield is +73bps/10yr TSY yield and +63bps/10yr swap rate. "Rate sheet influential" yield spreads (over benchmarks) are marginally improved as Fed buying has easily eaten up modest originator selling, $700mm and even a few 6.0s...meanwhile fast money MBS day traders have focused their strategies "up in coupon".

Price action has been sideways all morning with only 6,500 TBA MBS trades so far today. Below is the FN 4.5 two day...notice prices have held to a tight range all morning.

Zooming out, you can how the rate of MBS price appreciations has slowed over the past three sessions.

Lots of mortgage market news this morning...

The Obama Administration is putting added pressure on loan servicers: READ MORE

We are not so sure that is a great idea though: READ WHY

TB&W fallout is reverberating through the financial supply chain. READ MORE

We discussed internal warehouse lending from Community Banks...something you might be forced to learn more on in the future. READ MORE

This isn't new or unexpected but the FHA is talking about it increased net worth requirements of FHA-approved lenders, strengthening lender approval criteria, and making lenders liable for the practices of their correspondent mortgage brokers. READ MORE

It is month end, which means certain fixed income investors will be doing month-end index extension related buying in longer maturity TSY debt and MBS coupons. While this is a supportive time for the rates market in general, we remain wary of profit taking and the effects of the stock level...specifically an unwinding of the recent "flight to safety" bid that pushed rates through firm resistance levels. HERE is a post explaining index extensions.

The stock lever is in play today...while the intent of this message is to forewarn of the potential for higher rates,  equity weakness should not be overlooked as a selloff in stocks is likely to add momentum to the rates rally, or at least keep rates stable.