MBS RECAP: Holding Ground Impressively Despite Down Day

After the June 20th FOMC Announcement failed to coax bond markets out of their horizontal range, much began to be made of this week's EU Summit.  Then markets grew dismissive of it's potential early this week after two of the key Greek participants sent rain-checks.  Reality turned out to be somewhere between the hype and cynicism as the Summit at least produced something market-moving, but the movement was ultimately contained by the same old sideways range that has contained almost every last bit of MBS-relevant bond market trading since 6/5.  In terms of of Fannie 3.5's that range has been 104-20 to 105-08 with only a few brief departures outside.  Fannie 3.0's experienced it at 102-00 to 102-24 and 10yr yields from 1.55 to 1.69, give or take a bp.  The super clearly-defined triangle that, at one time, seemed intent on generating a marked break higher or lower, COMICALLY broke both higher AND lower on the last two days of the week only to hit the horizontal range boundaries on both sides and decide to stay inside those boundaries.

MBS Pricing Snapshot

Liquidity (and earlier gains) have been leaking out of bond markets since the noon hour. Fannie 3.0s are back down to 102-16 after hitting 102-22 earlier. Fannie 3.5's are down to 105-01.

We're not seeing any cause for alarm with respect to a major sell-off given the current information at the market's disposal, but simply being backed up to these levels does introduce a modicum of negative reprice risk. Reprices wouldn't be widespread by any means at current levels, but if bond markets make some sort of unified movement past support levels (1.675 in 10yr yields, 105-00 in Fannie 3.5s and 102-14 in Fannie 3.0s).