MBS RECAP: Well Into All-Time Highs After Weak NFP

MBS Pricing Snapshot

Some lenders are more prone to this than others, but anyone runs the risk of getting "too busy" with respect to capacity on a day like today, and thus runs the risk of repricing for the worse despite improving MBS in order to curb demands on that already-stretched capacity. The only two ways you can try to see something like this coming are:

- past precedent of reprices into rallying MBS Markets, and

- any other reason to believe that a particular lender's operations are stretched thin beyond the scope of just one regional branch.

We've seen one so far from a "big 5" bank. No way to know if others will follow, but it's a possibility, and one that we can't forecast with price movements.

All things considered, there really hasn't been too much of a knee jerk reaction to this morning's jobs data. 10yr yields shot predictably lower and after bouncing back from their initial lows, never went any higher than pre-NFP yields, bouncing lower just under 1.51 around 9:35am. Things have been narrowing and consolidating ever since, and that's something that MBS can appreciate. Fannie 3.0's just edged to their highest levels of the day at 103-03 (a price that a mere month ago, wouldn't have been too bad for a Fannie 3.5!). As for 3.5's themselves, they just notched above their earlier high at 105-11. 10yr yields are at 1.4687 and stocks have been drifting back toward their morning lows.

The biggest story of the morning apart from NFP, is one that hasn't gotten much attention, but has caused BY FAR the biggest swing vs y'day's trading range. Shortly after NFP, rumors started circulating about a concerted central bank intervention over the weekend, involving at least the ECB if not others. Relative to yesterday's range, the Euro skyrocketed from multi-year lows this morning to almost a cent-and-a-half higher from 8:49am to 9:35am. That's a gigantic move. Note the time of the bounce as well... Same time that Treasuries hit their highs....

Conclusion: we would have seen less indecision, and possibly even lower Treasury yields this morning had it not been for the intervention rumors. Expect further big moves ahead if the ECB comes out with any clarification for or against such an operation. For now though, markets have moved to discount it to a much greater extent than they had originally (discounting possible intervention, resulting in yields, Euros, stocks, falling back near previous levels, with all of the above being good for MBS, though a BREAK lower isn't great for MBS as it creates even more unwanted volatility).