MBS RECAP: Benefiting From Weak ISM, Tapering Off Late

MBS Pricing Snapshot

Reprice risk at present is mostly a factor of a particular lender's previous reprices today and they're general propensity to react to rather small changes in MBS Prices. We could imagine if a lender has repriced positively today or is otherwise near the top of the market and also is generally predisposed to be one of the first few to reprice, then the risks of negative reprices are moderately increased this afternoon as MBS fall to their lowest levels since 10am.

It's an interesting situation because we also wouldn't be too surprised to see a slower-to-respond lender--one who may have been waiting for MBS to display a bit of staying power--to be coming in with a late reprice for the better. Bottom line, MBS are still 3-5 ticks higher than they were before this morning's ISM data, but are noticeably off their highs since then.

There's nothing to report here really, unless you'd consider the lack of interesting goings-on to be paradoxically interesting. Things are very quiet despite volume having reached fairly decent levels for an average trading day, let alone the only full trading day before the holiday on the 4th.

Fannie 3.0s have held a narrow range just over 103-00 since just after the Fed "Twist" buying wrapped up at 11am. Markets got their biggest boost from the disappointing ISM data at 10am but got another smaller boost after the 11:00am Twist buying results painted a general picture with "less supply than demand." Treasuries ratcheted another few bps higher on that news.

The ongoing flatness looks like it might be fading just a bit here in the afternoon as Treasuries cross the 3pm closing mark, but ultimately, we'd need to see Fannie 3.0s break below 102-30 before we'd care too much. So far, we're just seeing a little leakage from the highs of a narrow range to the lows, and at this point still more likely to see positive reprices vs negative (not really likely at all to see negative reprices unless it's motivate by something other than MBS Prices, such as "pipeline control").