MBS RECAP: 2/22/2012

We say "additional positive reprices" both in the sense that additional reprices have been reported since the last update and that there's ongoing potential for additional positive reprices at current levels. This afternoon's strength coincides with some favorable developments in longer term technical levels, which we discussed in the latest MBS Commentary post.

"From a technical standpoint, the past few sessions have been a fairly gloomy scene for MBS and Treasuries--our two representatives from those camps being Fannie 3.5 30yr Fixed MBS and good old 10yr Treasury Notes. The technical gloominess should be fairly evident in the upper sections of each chart below. In short, both MBS and 10's had moved weaker beyond the limits of long-term trend channels and were at risk of breaking beyond horizontal levels as well.

For Fannie 3.5's, the first major break of a horizontal level at 103-10 was seen Friday on an intraday basis, but prices made it back by the end of the day. Yesterday's trading suggested the breakout more firmly as prices fell to the next major pivot around 103-00. It was (and still is) up to today's price action to reiterate or refute that move. With the current strength, prices are now in position to close at 103-10 or higher; a potentially good technical development for MBS. "

Read the full commentary here:

A slightly weaker-than-average bid-to-cover was offset by high yields trading through screens by half a bp versus 1pm levels and 0.8 bps vs when-issued levels at 1:01pm just before results were released ("through screens" = auction's High Yield came in below the "when-issued" trading levels).

• Bid-to-cover : 2.89 vs 3.02 avg last 4
• High Yield: 0.900 pct
• 1:00 pm WI: 0.905 pct
• Tail: 0.5 bps vs 1.05 bps avg last 4

Bond market reaction has been mostly uneventful, though is perhaps inching into slightly more negative territory. 10yr yields are up about 1bp since the suction, but with no discernible spike in volume and no indication of an impending sell-off. As expected, several lenders have repriced for the better given MBS relative ground-holding over 103-05 in Fannie 3.5 coupons. More may follow if those levels are held or improved upon.

MBS are near their highs of the day having moved steadily higher since just after 9am this morning. Fannie 3.5's are up 9 ticks from 5pm yesterday at 103-08 and 10yr yields are down nearly 5 bps to 2.0121.

These levels in MBS are entering territory where some early-to-act lenders could be considering repricing for the better, but with the 5yr Note Auction not even half an hour away, the impetus to do so could be somewhat lessened. Reprices become more likely the longer current levels are held or improved upon, and especially if one or both of those factors remain in play after the auction.