MBS RECAP: 2/6/2012

About 2 hours ago, we started to entertain the possibility of positive reprices despite the lack of outright gains, and suggested that additional lenders would either need more time or further improvement in prices. They ended up getting both, and we're ending up seeing more reprices as a result. Things still aren't widespread in terms of participating lenders, but the possibility remains into the afternoon as MBS have basically been on a slow, steady run higher in price since Friday afternoon.

Fannie 3.5's are up 5 ticks on the day to 103-28 and 10yr yields are down 2.6bps to 1.898.

Against today's data-free backdrop, the only real market mover has been the earlier scheduled Fed buying (30yr sector of Treasuries) that left the long end of the yield curve in slightly better shape. 2s v 10s moved down to 167 from 170.8 just before the Fed buying. In the process, 10yr yields have held support nicely under 1.95, and it seems that MBS appreciate the stable environment. Fannie 3.5's have marched calmly to better and better prices all morning, now up 4 ticks at 103-27.

Volume has been quite light and volatility quite low for MBS. The swings in Treasuries have been a bit choppier by comparison, but this is the expectation surrounding these Fed market ops, and as long as the next pivot point on either side of the prevailing range remains unbroken, the volatility isn't much of a concern. This is exactly what happened this morning as yields rose at their quickest pace in the lead up to the Fed buying from 9-10am, then got choppy for the next hour, finally resolving a bit lower than this morning's previous lows. 10yr are currently at 1.9083.

Is all this good enough for a potential positive reprice? Maybe... In terms of outright price gains, we'd normally like to see a bit more before considering reprices, but there's something to be said for slow and steady improvement, even if it's minimal in terms of outright gains. A few of the early crowd might show up with reprices, but the majority of lenders would likely need either more time or further gains.