MBS RECAP: 9/2/2011

After spending most of the session trending lower from a post-jobs-data bond market rally, the Fannie Mae 4.0 has found support at 104-08 and is heading into the 3pm close near its session highs. Triggered by weakness in stocks, this positive development has erased the outside chance that lenders might recall and reprice for the worse. Don't hold your breath for a reprice for the better either, lock desks are likely to keep pricing strategies conservative heading into the long-weekend, especially with benchmark rates already testing record lows. Secondary managers will be looking for proof that new record high MBS prices are even possible before offering more aggressive BestExecution quotes and cheaper buydowns. No reason spook the herd within your "committed pipeline" on a Friday afternoon when the rally might already be baked into valuations.

We're labeling this an alert although don't quite yet have the magnitude of losses that would motivate most lenders to reprice for the worse. This could simply be a test of the weakest post-NFP levels. 10's moved to 2.073, matching an earlier yield high at 850am. They're currently back down to 2.062... Too soon to tell how things will pan out. MBS made a similar move down to 104-06 in 4.0's and then back up to 104-09 currently. 3.5's are at 101-14. We'd actually probably be watching that 101-14 level in 3.5's today. If we move much below there, reprice risk could pick up (tip: that would make 101-12 a good price to set in your alert preferences today).