MBS RECAP: 12/15/2011

Fannie 30yr 3.5's .... $1.65 bln
Fannie 30yr 4.0's .... $2.0 bln
Freddie 30yr 3.5's .... $0.95 bln
Freddie 30yr 4.0's .... $1.15 bln

The rest of the buying was limited to less than $500 mln in any other sector. Ginnie 4.0's got 450, 3.5's got 350. 15yr 3.0's got $650 mln between Fannie and Freddie and a scant $100 mln in 15yr 3.5's.

A slew of generally stronger-than-expected economic data has been shunned by stocks, commodities, Treasuries, and now MBS. The economic data was a "gift" of sorts, for a few reasons. First, the mere passing of the data means that effectively all of the week's significant data and economic events are in the rearview. Thus, money from the sidelines now sees the last of their barriers dropped without major arguments to buying in fixed-income. Secondly, the bullish tone of the data dropped prices enough at first to provide entry points for those sidelined buyers as well as anyone else who wanted to stock up some inventory for the Fed buyback (just happened, Fed bought $4.9 bln in the 6yr range out of 13.7 bln offered).

Beyond that, although bullish, none of the economic data was especially so. Combine that with ongoing awfulness in the Euro (1.30-ish!) and why not keep nibbling at 10's down to 1.89 at least?

Although we're concerned with the question of "where do we go from here if not back higher in yield?" things are good for now. With Fannie 3.5's up 3 ticks on the day at 102-17, we're back in the thick of yesterday's trading--a bit too early for most lenders to consider repricing, but the possibility is creeping onto the radar for the "early" and/or "algorithmically motivated" crowd. We'd lean toward a break of 102-19 as more convincing trigger for a small, first wave of reprices.