MBS Hit Intraday Low in Thinly Traded Market. Reprices Possible If...

Rate sheet influential benchmark yields have drifted leisurely higher in a thinly traded marketplace.

The 3.625% coupon bearing 10 year TSY note is -0-04 at 98-21 yielding 3.788%.  My use of the term "drift" was intended to convey a lack of conviction in below average trading volume. Nonetheless, yields are heading toward a test of the 3.79-3.80% pivot. If this rise in yields fails to generate a bargain buyer bid, we may see the 10yr hit 3.82%. We do not want to break that support level....

The FN 4.5 is -0-03 at 100-13 yielding 4.458%. The secondary market current coupon is 4.448%. The current coupon yield is 66.8 basis points over the 10yr TSY note yield and 69.5 basis points above the 10 year interest rate swap. Like big brother TSYs, trading of production MBS coupons has been slow to start the week. While yield spreads are slightly wider from Friday's "going out" marks, I wouldn't anticipate much more yield spread loosening until the mortgage market is able to originate more loans (or if rates rise and lenders need to hedge).

Plain and Simple:  For the most part, we are playing "follow the leader" with benchmark TSYs until more loan supply hits the street.

Quiet market or not, "rate sheet influential" MBS coupons hit a session price low a few minutes ago. If 100-10 support fails to hold, reprices for the worse will be possible.