3.5 MBS Coupon Bid at Record High Price. Can Rebate Get Any Better?

Lenders are going for it. 4.0 hedges were bought back yesterday and 3.5 MBS coupon supply traded. On average, loan pricing is up 26.8bps today and 96.6bps better week over week (Thursday was the worst day to lock last week). All in, consumer borrowing costs are cheaper than they've ever been...3.875% par pricing is a reality.

Can it get any better than this? Sure. Not all lenders are offering 3.875% pricing yet, some desks need to catch up. If we hold at record MBS price levels, this is a possibility.  But if mortgage rates are to move below 3.75%, 3.0 MBS coupons need to trade because originators can't deliver note rates below 3.75% into 3.5% MBS coupons. We also have to remember how long it took for the market to accept 3.5s.... a long time!!! Even then 3.5s have not been the coupon of choice for hedgers, 4.0s have been, 3.5 supply has been spotty at best. But still, we can't rule out the possibility, I just wouldn't be willing to bet on it. Read "BET" as "willing to float my personal loan". If I was a borrower I would be looking to lock in below 4.25% with minimal closing costs as soon as possible. After seeing this pricing come and go quickly in the past,  I couldn't let the opportunity go by again without taking advantage.

3.5s are trading at record high prices....

Last night I discussed the potential for rates to move higher based on an outlier Fed QE strategy. It was intended to be a discussion, I wasn't offering an outlook, I was thinking out loud because there is so much going on and sometimes that's how you work through an issue, thinking aloud. Please do not take it as me telling you the Fed is going to hike rates. More or less my intention was to point out that the Fed may need to utilize unanticipated methods to battle their duel mandate. This policy may not be supportive of 3.5s trading at record high prices, which implies current rate quotes might be as good as it gets.   READ MORE