MBS RECAP: Out Near Highs. Reprices Reported

10yr notes have cut an extremely narrow range slightly higher in yield since hitting their best levels of the day. 3pm marks came in just barely under 3.47 and current yields are 3.473. FNCL 4.5's have given up less ground than treasuries with current prices at 101-21, good for 11 ticks up on the day. Not all lenders have repriced for the better but most have. We'd still hold out for an improved rate sheet if u haven't seen one yet.

FNCL 4.5's are up to 101-21 which is a 12 tick improvement on the day. There's a noticeable pivot point in 10yr yields at 3.466. Gravity seems to be drawing yields to that level as we hed into the 3pm close. Reprices for the better have been widespread, and if you haven't seen one yet, it's likely only a matter of time.

FNCL 4.5's are finally perking up, having just hit 101-19, which is only a tick away from recapturing the spread between March and April coupons that was removed from the price yesterday due to the roll. 10's just broke 3.47 resistance and are moving into the 3.45's now. This bond market is more like the one you'd expect following a strong 10yr auction whereas things felt too reserved earlier. As MBS reach the 101-20 target, lenders have already begun repricing and more should continue that trend.

The 10yr note auction was strong. Bid-to-cover came in at an impressive 3.32 and Indirects showed up yet again, this time with 53%. With a high yield of 3.499 versus a when-issued market that was at 3.518 at 1pm combined with the best bid-to-cover since last year's March and April auctions, the bond market is understandably rallying. But with important data yet to come on Friday as well as tomorrow's 30yr auction, there's a great deal of reservation in the rally. 10's only made it as low as 3.49 before retracing a bit into the 3.50's. FNCL 4.5's are hopping between 101-13 and 101-14. Both sides of the market seem to have encountered some resistance at these levels. That being said, it's entirely possible that the supportive auction results, when combined with whatever kind of rally we're in the process of getting will be enough for a lender or two to reprice for the better.

U.S. SELLS $21 BLN 9-YR 11-MO NOTES AT HIGH YIELD 3.499 PCT, AWARDS 77.02 PCT OF BIDS AT HIGH *** U.S. 9-YR 11-MO NOTES BID-TO-COVER RATIO 3.32, NON-COMP BIDS $68.73 MLN ***

Prepared Remarks of Secretary Shaun Donovan at a St. Paul, Minnesota Press Conference on “Winning the Future Through Investments in Small Business”. Check out the speech:

*** Today 09:21 - CORRECTED-PIMCO'S TOTAL RETURN BOND FUND DUMPS U.S. (NOT ALL) GOVT-RELATED SECURITIES INCLUDING TREASURIES *** Today 09:21 - RPT-PIMCO FUND SALES INCLUDE TIPS, AGENCIES, INTEREST RATE SWAPS, TREASURY FUTURES, OPTIONS, FDIC-GUARANTEED CORP SECURITIES-SOURCE

3.52 to 3.54 marks the two basis point range in which 10yr yields have operated all morning. Boring... Slow... Quiet... MBS are no better, with FNCL's currently at 101-10 and having cut their own narrow range between 101-09 and 101-12. If the markets are planning to run up yields at all heading into the 10yr auction, we haven't seen it happen yet, and with only 30 minutes to go, it might not happen at all, or just in too small an amount to care.

From the Atlanta Fed: The idea that a program to reduce principal balances on mortgage loans will cure the nation’s housing ills at little or no cost has been kicking around since the very early stages of the foreclosure crisis and refuses to die. If news stories are true, the administration, in conjunction with the state attorneys general, will soon announce that lenders have agreed to write down borrower principal balances by a grand total of $20–$25 billion as part of a deal to address serious procedural problems in foreclosure filings. Policy wonks and housing experts will greet this announcement with glee, saying that policymakers have ignored principal reduction for too long but have seen the light and are finally going to cure the epidemic of foreclosures that has gripped the country since 2007. Are the wonks right? In short: we think not. FULL STORY....

On average among the five major lenders C30 loan pricing is 11.4bps better vs. yesterday's repriced offers. 4.875% is still Best Execution but note rates below 4.875 saw the largest rebate improvements. The cost to permanently buydown the borrower's rate from 4.875 to 4.75 is 1.02 points on average. That is extremely expensive as it would require the mortgagor keeping their note outstanding for 10+ years before recovering the upfront buydown fee. On a positive note, the spread between primary and secondary loan pricing tightened 7bps today. That implies lock desks lessened the amount of margin they have baked into rate sheets.

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