MBS RECAP: Fannie/Freddie 30yr Roll Day Makes For Thin Trading Conditions

MBS Pricing Snapshot

Today is "48 hour" day for Fannie and Freddie 30yr Fixed MBS. So this afternoon will be the last time that October coupons will underlie MBS prices and marks the time when we shift to view November vintages. This will also give the appearance of a rather large price drop, unlike the price drop we just got this afternoon, which is, in fact, quite real.

Fannie 3.0s dropped from 105-07 to 105-04 in one trade. Bigger picture and longer term, this doesn't much bother us as illiquidity and volatility surrounding the roll is pretty standard. But short term, it makes for a somewhat uncertain reprice risk environment and we can't rule out the possibility that some lenders may still reprice based on this drop even though November coupons haven't experienced the same drop.

To be clear, markets have largely moved on to November coupons (as far as Fannie/Freddie 30yrs are concerned) and most lenders should be considering that when it comes to determining rate sheets at the moment, but technically "the most current pricing" is still on October coupons and even though it wouldn't make logical sense for a lender to reprice negatively on this meaningless illiquidity, we're giving you the heads up just the same.

We haven't been shy about the claim that 2 and 3yr Treasury Auctions no longer matter for the longer end of the yield curve (like 10yr Notes) and Production MBS (like Fannie 3.0s). This has been the case for quite some time and was amply solidified after the Fed began using calendar date guidance in the FOMC Announcements. So ongoing coverage of 2-3yr auctions with respect to production MBS is more of an exercise in habit and continuity than an important market-moving event.

Today is no exception. In fact, if any recent 3yr auction stood a chance to have an impact, today's would probably be among the top contenders. It was an incredibly strong auction yet has produced nothing by way of market reaction.

This merely adds to a rather uneventful session for MBS as Fannie 3.0s continue to hold just at or above 10am levels--currently up 7 ticks at 105-09. 10yr yields are 2.75bps lower on the day at 1.7045 and have flatlined in the past hour and a half.