MBS RECAP: Slightly Improved in Light Volume, Low Volatility

MBS Pricing Snapshot

After the earlier correction took MBS and Treasuries alike to their weakest levels of the day, both spent the past hour back near the center of the day's trading range. For 10's that was in the mid 1.92's and for Fannie 3.5 MBS, around 103-24.

But Treasuries have weakened into this afternoon's stock market bounce back. S&P's put in a convincing bounce around half an hour ago and are since up a quick 4 points. 10yr yields followed and recently revisited their highs of the day.

Conversely, MBS are definitely not at their lows of the day, signifying some relative outperformance vs Treasuries. The reprice outlook is fairly neutral at the moment. We take heart in the outpeformance and narrow range, but remain guarded against "things changing" in such a way that leaves Fannie 3.5 MBS under 103-22.

Whatever the case, any movements outside today's range would need to be accompanied by a sizable pick-up in volume. The day has been thinly traded and mostly apathetic so far.

MBS and Treasuries are both trading sideways at their weakest levels of the day. With a range of 103-21 to 103-27 for MBS and 1.91-1.93 for 10yr Treasuries, that's not saying much. Still... a break past current support would constitute enough weakness for a shift in reprice risk. This is more of a preemptive heads-up that we're on the edge of a riskier price zone. The "early" lenders could get involved just under current levels.

If we do see negative reprices, we'd emphasize that there are no major underlying causes for market weakness. They'd be more incidental, having little, if any broader implications. What we've essentially seen is bond markets get long into Fed buying, and correct back to previous levels afterward. The stock rebound is a small consideration as well, considering the lack of trading motivations, as are the various European closing bells that have recently taken some wind from the sails of Treasuries.

MBS are merely along for the ride though they stand a good chance to sell-off at a milder pace than Treasuries (if the latter even sells-off at all). In the slightly bigger picture, bond markets could weaken a bit here and we'd be OK with it. Such a move would be another piece of confirmation that bond markets are rallying in the bigger picture. We can appreciate that seems counter-intuitive, but the reason is that selling pressure here keeps the PACE of the recent rally WITHIN linear boundaries whereas further rallying would be a concern as it would refute the recent trend, creating uncertainty about what's been happening (in a technical sense) and where we might be headed.