MBS MORNING: PreAuction Concessions and Perspectives

Benchmark Treasury yields are on the rise ahead of the release of 10 yr note auction results.

The 3.375% (still) coupon bearing 10 year Treasury note is -0-02 at 97-24 yielding 3.651%. This is slightly above the recent range's mid-point.

Rate sheet influential MBS prices are weak as a result. The FN 4.5 is -0-04 at 100-19. 100-16 is where we start getting worried about reprices for the worse.

If you are debating lock float before the auction...

We've been pretty clear about our BIG PICTURE lock stance. If you are within 30 days...while floating might pick up a few bps here and there, we dont see it as worth the risk. If you are outside 30 days and waiting to move into 30 day pricing...we think you should be comparing commitment period buydowns to the cost of extension. If the cost of extension is cheaper than the extra days upfront, maybe consider locking and pushing for a faster closing(?if you can swing it). If you cant close in 30 days...keep a close eye on 3.71%. Once that level is broken, rates will start to venture higher.  Evaluate lock/float everyday in this environment.

This assumes you are on board with our Q1 2010 higher rates outlook.

Two other things to discuss...

This is a blizzard and...

I read the text of Bernanke's testimony. No reaction in MBS valuations after the release. Spreads are still tight. Fed support is still enough to keep the market stable (for now).