MBS ALERT: Reprices for Better Possible

It's been a slow session but MBS prices have reversed course and gone green. Recalls and reprices for the better are possible.

Here is a progression of events from the MBS Dashboard...

(11:39) - Rate sheets are about unchanged vs. indications on Friday when both reprices for the better and worse were reported in the same session. At the moment, risk is skewed toward the potential for unfavorable reprices, especially with rebate mostly flat and production MBS coupon prices moving marginally lower. Our negative reprice target is 103-02 in FNCL 4.5s. This would imply benchmark 10s were testing 3.21% support. Reprices for the better are more likely to be awarded as FNCL 4.5s move into positive territory and approach the 103-12 level. We currently do not recommend floating if you need to lock within the next week to 10 days.

(12:40) -  In the course of the last two hours, 10yr yields improved 4 bps and FNCL 4.5's rose from 103-05 to 103-10 before running out of steam. 10's are currently at 3.1691 and 4.5's at 103-09. The joint movements are emblematic of markets that continue to bide their time, choosing to favor what has mostly been a consolidating range in the month of May. The resistance bounces for both MBS and TSYs fall in line to a series of slightly less ambitious resistance bounces. But the supportive levels have been getting higher and higher as well. This combines with the moving trend on the resistance side to suggest a consolidation centering on 3.20 in 10yr notes (roughly).

(1:20)  - In a break from a recent trend of "lower highs and higher lows," MBS are a few ticks better than their previous high, currently up 3 ticks on the day at 103-11. Reprices for the better are possible at these levels, and become increasingly likely the longer they hold or the greater margin by which they are surpassed.

We're on the border. Lenders are likely to be slow with recalls. Gotta hold this intraday reversal.