MBS MID-DAY: Reprices For The Better Reported

Reprices for the better have been reported as persistently weak stocks continue to allow for bond yields near the days best levels. For MBS, that's 4 ticks better in FNCL 4.5's at 103-14 and in 10's, 2 bps better at 3.1525. The first reprice seen was indeed from one of the previously mentioned lenders who priced at just the wrong time this morning. Similar lenders may follow and even other lenders are possible given that we have held gains in a relatively stable fashion. The warning is that the strength so far today is very dependent on weak stocks. If they muster some sort of epic turn-around, we could be talking about the other kind of reprices later today.

After going out at 1342.60 last night S&P's are down to 1334.16 in the first half hour of open trading. That steep slide has been of great benefit to bond markets on this data-less day as 10yr yields are down to their lows at 3.152 and FNCL 4.5's are up 3 ticks on the day now at 103-13. For lenders who priced when 4.5's were around 103-10, we'll need to see another few ticks or an extended time frame holding 103-10 or better. Possibilities of reprices also rely a bit on how aggressive morning rates were. Several lenders priced on a downswing in MBS prices and thus may have been slightly more conservative than they otherwise might have been. If that conservative vibe is missing, then 103-13 is probably not enough for a reprice for the better, though even with a tick or two gain that's held in a stable fashion, it could happen.

FISHKILL, NY, May 20 (Reuters) - The recent rise in gasoline prices is driven by unrest in the Middle East and is therefore not something the Federal Reserve is in a position to tackle, a top Federal Reserve official said on Thursday. "We don't have a magic wand, unfortunately," New York Federal Reserve Bank President William Dudley told a meeting in Fishkill, New York in response to an audience question. Dudley said it was hard to get a read on the recent drop in commodity prices, but added he hoped it would persist. (Reporting by Kristina Cooke; Editing by James Dalgleish)

Only an hour and change into the domestic session and the characteristic volatility of an options expiration Friday is evident. The first miniature whipsaw of volatility has already worked it's way through 10 yr notes and MBS as both opened stronger, changed quickly weaker and are now close to breakeven on the day. For FNCL 4.5's that currently looks like two ticks lower at 103-09 and 10yr notes are half a bp higher at 3.1783. The theme of the day is the triangle in stock markets. Both short term and intermediate term charts have trends that are clearly converging in an exceedingly linear fashion. There's more "room" for a downside break (meaning that the longer term triangle would not be broken if the short term triangle breaks to the downside whereas the top line is shared by both). The direction that stocks break from today's triangle stands a reasonable (though not guaranteed) chance of pulling bond yields in the same direction via the stock lever. Unless and until that happens, we're just in a sideways slide this morning, albeit with higher than normal volatility.

S&P futures are currently off about 3 points versus yesterday's close. They rose briefly last night, but fell about 8 points between 4:30 and 7:30am. During that time, 10yr yields hooked up with stocks with a high amount of correlation. 10's fell as stocks fell, but only to the tune of a few bps. They're coming into the day about a bp and a half lower at 3.1562. FNCL 4.5's are up 3 ticks so far today at 103-13. If the green theme holds this morning, it should allow lenders to come out with slightly better rates than the latest offerings from yesterday. There's no econ data on tap for today and overnight volume was underwhelming.