MBS RECAP: FOMC And ECB Cancel Each Other Out, Just In Time For NFP

MBS Pricing Snapshot

We're not sure it will matter much--at least not if current levels hold--but bond markets have weakened somewhat into the afternoon. Fannie 3.0's are now at their lowest levels since this morning's Draghi press conference rally, though we'd note that's a fairly narrow range, and in the zone of most of the recent highs to boot.

The risk is an ongoing deterioration into the 3pm Treasury close and perhaps beyond. Although prices aren't far enough away from rate sheet time, those morning hours had a decidedly more upbeat feel to them as we'd just dodged a bullet of sorts (or "lack of bullet" from Draghi's monetary policy gun).

So simply based on the visceral response we're having to this afternoon weakness, and especially if things continue to slide, we wouldn't rule out a negative reprice at or below current levels, even though we're not expecting that to be a widespread phenomenon just yet. More to the point is that if you were considering locking ahead of NFP tomorrow, it's looking like a good time to do that in light of the fact that positive reprices are looking much less likely than negative reprices at this point.

Little has changed since ECB Pres Mario Draghi's press conference following the ECB policy statement earlier this morning. If you missed it, the ECB did nothing new and Draghi surprised even the skeptics with just how little he backed up seemingly significant promises made late last week about doing whatever was necessary to preserve the Euro.

The Euro immediately fell to the exact levels seen before Draghi's speech last week and has essentially stayed there for the balance of the morning. Bond markets were much improved in strong volume as the press conference ended. Fannie 3.0's moved up to 104-02 and continue to trade there despite a brief foray higher to 104-05. This puts them in line with the best levels of the day yesterday and leaves the door more or less open for lenders to reprice positively as it suits them.

10yr yields are down to 1.4593 at the moment, better than a 6bp drop on the day. There's no additional scheduled data or events of note for the afternoon and attention should now turn to tomorrow morning's NFP. This doesn't mean that positivity is guaranteed to persist into the afternoon, simply that any negativity would be an incidental side effect of lower volume position-shifting in preparation for tomorrow, unless otherwise noted.