MBS RECAP: Quiet Session

The stock lever had been somewhat connected around the noon hour but has disconnected a bit now. S&P's are rallying off 1293 lows, currently at 1295.5. That notwithstanding, 10yr yields are near their best levels of the day at 3.328 and FNCL's similarly are at 101-30. As far as significance to these levels, there isn't much... It's the after-hours session of an apathetic day of trading with low volume. We're waiting on the last 3 days of the week for more data, news, and inspiration.

As previously mentioned, both Treasuries and MBS had been making "triangles" (consolidating trends of lower highs and higher lows) in progressively lower volume and volatility. While this continues to be an almost perfectly symmetrical affair for MBS (FNCL 4.5's at 101-29), 10yr notes are slightly more bullish with respect to their range so far today. Yields pushed down to the best levels of the day near 3.33, but so far, seem to have met resistance there and have made a small move back to the middle of their range.

Higher lows and lower highs have prevailed in both MBS and Treasuries. The triangle's apex lies on roughly 3.345 in 10yr notes and roughly 101-28 in FNCL 4.5's. Incidentally, those are both the current levels. This is a clue to the fact that things are quiet and sideways at the moment, with prices and yields not deviating much from the midpoint (triangle's apex) of their consolidating trends. Reprice risk is nil at the moment, but a break below 101-27 could change that.

Benchmark 10's were able to put in a "lower high" yield recently, under 3.36 versus an earlier bounce in 3.36+ territory. They are now at 3.341 and FNCL 4.5's have clawed back to 101-30, which is only 4 ticks down on the day. Reprice risk is staying away for now.

An abundance of negative news headlines have overshadowed signs seen by the Federal Reserve that suggest our economic recovery is on "firmer footing". The end result is an overabundance of uncertainty. Traders are stuck in "wait and see" mode. From that perspective, we're looking for benchmark interest rates to establish a new range, but remain conscious of the market's sensitivity to a headline news driven "flight to safety". What does this mean for mortgage rates? Unless the situations recapped above deteriorate further, current mortgage rate levels are about as good as it gets. A sustained bond market rally is needed if real money investors are to move "down in coupon". READ MORE IN THE LINK BELOW...

FNCL 4.5's are down 4 ticks from their highs, but fortunately, most lenders will have priced slightly before those highs, meaning that we've not yet experienced sufficient losses for reprices for the worse to be likely (though we should mention that if a particular lender priced between 10:20 and 11:30 am then there is a slight risk. The more serious reprice risks will come if MBS fall further from here or if benchmark 10yr notes break 3.36 support. 10's are currently at 3.354 after touching lows of 3.33.