MBS AFTERNOON: Potential Reprices For The Better

By: Matthew Graham •
  • MBS Off To The Races with 4.5's up 8 ticks to 101-15!
  • 10yr up 5 ticks on the day dropping yield to 3.70 (through post auction resistance)
  • Reprices for the better = highly likely

From the Ninja:

Mortgages are still on hold as today’s 3yr note auction held few surprises-everyone loves the shorter end of the curve; don’t you? $40 billion notes maturing in 2013 is quite commonplace and the sheer size of the issue is no longer an emotional and or logistical challenge to anyone directly (or indirectly, on the bid) involved. No real change to the way we do and or perceive business here in MBS secondary trading land. The market is better into lower and or range-bound rates, like today, and not as excited should the treasury market break out to the upside to prices (and lower interest rates). The best thing I could relay to you, as mortgage brokers, would be a day with modest prices upswings that lower interest rates and compresses spreads even tighter against said rates (30yr mortgage rate closes in on 10yr note).  The influx of corporate issuance and hedge unwinds (sell corporates, buy treasuries as an offset) has given the concessionary back up to interest rates (ahead of tomorrow’s 10yr note offering) some stabilization.

Mortgages are due to start widening out one day soon (post March 31st), while the upper stack hems and haws its way out of the minefield known as FNMA two to three month clear out sale (all 120+ day delinquency loans pulled out of premium pools-6% and higher). If and when the yield curve starts to flatten back (10yr notes rising in yield less than 2yr notes), rates along 30yr MBS may catch a break even as spreads widen. No real predictions here, however I do not believe we will be saddled with secondary par coupons of 6% (6.5% by the time it filters back to primary rate sheets); more likely 5% at worst. Hope that adds more sunshine to your spring like March afternoon. Be well and prosper.

Now looking at highs from this AM at 101-11 as a potential lock trigger for those of you who get a reprice, in the event prices fall after the reprice.

Otherwise, sit back and enjoy at least until the minutes before lock cut-off, perhaps longer.