Reprices for the Better Reported. More Lock/Float Considerations

By: Matthew Graham •
  • 4.5's up 8 ticks at 100-25 (after being as high as 100-28)
  • 10yr yield down approx. 6bps at 3.67
  • S&P Down "lots" at 1194.71.  Got a bounce on it's 1190(ish) support.
  • Uncanny Adherence to Treasury Trend Channel. 
  • Technicals thanks to Fundamentals?

MBS prices are a few ticks higher than some of the lower levels seen in march and January before major sell-offs.  Treasuries are within a bp or two of their actual level the day before the big March sell-off.  As you'll see in the longer term chart, it was a steep shot up to those high yields, but an EXTREMELY technical and measured return.  Almost like the high and low sides of the trend channel agreeing to work in a reluctant pair to move in the same direction with some sort of blind hesitance.  Almost like a calculated "testing of the water."  Hmmm..  Sounds like this game I know that's incidentally played in the water!

This downtrend is so important because it leads us to test a longer term uptrend that we can see below:

But just like the charts say, while today's move is definitely good, we're now getting into those 10yr yield levels that many analysts see as the lower end of this range (c3.65~).  In addition, the breakout of this trend would really be much more significant if it holds into next week and even then, only have broader, longer term significance if it can weather the NFP impact on Friday.  Tall orders, all, but for today at the very very least, things are very very strong, and it's highly possible to see reprices for the better if you haven't seen them already. 

If you do, take a careful look at the charts and how good your pricing is, and consider the trend channel in treasuries is now closer to indicating a move higher in yields unless the trend actual BREAKS.  But I'm guessing if it breaks to the downside, we'll all be so happy (and busy) anyway, that we wouldn't feel too bad about having locked when the charts made it look like it was about time to lock.

By the way: that doesn't mean "lock right now!" or that any reprices for the worse are coming in the next few minutes.  I'm purely speaking to those among you who consider your options in the hour or two before lock cut-off and whether or not you'll be "floating another night."  If my rate sheets were "better enough," I'd likely lock a portion tonight simply because the trend channel in the 10yr tells me to. 

Along those same lines, I'd also only consider the profitability of a deal in the context of when it arrived.  Even if MBS improves next week, it's still a net-gain deal if it was originated almost any time since march 23rd.  That means it's hard to go wrong with whatever you do, and as always, we'll give you a heads up if trouble looks to be brewing.