MBS RECAP: Reprices for the Worse Reported

MBS have drifted back to their lows in low volume. In fact, compared to the volume earlier in the day, current prices and yields should be largely discounted. The story of the day is that the bond market moving back to epic fences, namely the 3.56's. The focus is now on tomorrow's NFP to decide whether or not we tread higher into the old range, or stay happier by comparison in the new range.

FNCL 4.5's hit 101-07 and are not likely to go any lower today, or at least not likely to go lower with any significant volume. Chalk this up to the movements of benchmark guidance givers engaged, which have moved to middle ground between early February weakness and Late February Strength. For 10yr yields, this is in the mid 3.56's, a range of yields that hasn't been crossed since it was broken in the overnight session between 2/18 and 2/22. Anything higher belonged to the previous, weaker range, and anything lower to the newer, more bullish range. 10yr yields are finding support here in preparation to either move back into the previous range or to continue in the new range based on the NFP print tomorrow.

(Reuters) - Political unrest in the Middle East and North Africa adds a dose of uncertainty to an already-fragile U.S. economic recovery, Atlanta Federal Reserve President Dennis Lockhart said on Wednesday. The U.S. economy is improving steadily but unemployment remains "frustratingly" high and a number of risks remain, suggesting the central bank should complete its $600 billion bond-buying stimulus as planned, Lockhart said. "It will be wise to play it out through its conclusion mid-year as planned with no reduction," Lockhart told a meeting of business executives.A recent spike in gasoline prices raises the possibility that inflation expectations will move higher, but that has not yet taken place, Lockhart said. "Wages continue to be quite subdued, wage growth is quite subdued," he said in response to questions. "You get inflation broadly speaking when you add to the mix the chasing of wages to underlying price movements. That does not exist today." Lockhart said he expects inflation to orbit around 2 percent -- the Fed's implicit target -- over the next six months to a year.

FNCL 4.5's have fallen a few more ticks from their previous range, now down a total of 11 ticks on the day at 101-09. This may eek out additional reprices for the worse depending on how ugly the original rate sheet was this morning. Treasuries continue to hit support levels and break them shortly thereafter. At first it was 3.533, then 3.546. Most recently 3.565 is being tested and that may break as well. It all adds up to an ugly day for loan pricing and an ongoing risk of reprices for the worse.

After making an effort to climb out of the dumps, MBS and treasuries find themselves right back there. FNCL 4.5's are down 8 ticks on the day at their lows of 101-12. 1`0yr notes moved sharply higher to test their previous high yields fo the day at 3.546, although they've bounced a few times there without going higher. Reprices are not a big risk as the moment as we've been relatively weak all morning, but if a lender priced very early, or priced on the upswing that occurred in the first part of the 10am hour, it is an outside possibility. But the most serious risks would be reserved for breaking lower than current levels.

"Non-wage input costs increased for manufacturers and retailers in most Districts. Manufacturers, in a number of Districts reported having greater ability to pass through higher input costs to customers. Wage pressures remained minimal across all Districts; although Philadelphia, Dallas, and San Francisco noted that most wage increases were for workers with specialized skills."