MBS RECAP: Friendly Morning, Unfriendly Afternoon, Generally Positive On The Week

MBS Pricing Snapshot

Good, old-fashioned Friday afternoon sell-off folks. Treasuries are leaking higher and MBS even more so. Markets aren't moving in reaction to news or events. Rather, these are positional adjustments at the end of the week in relatively light volume (which exaggerates the effects of each dollar traded), late in the day when light liquidity allows mini-snowballs to get rolling faster and with less justification than almost any other time of the week.

MBS had returned to the morning's sideways range until just after 1pm, and then began to slip. In the past few minutes, they've slipped further, with Fannie 3.0s now down 6 ticks on the day to 105-03. While these are still decent levels for the week, they're more likely to result in negative reprices from a few lenders (unless we get a BIG bounce VERY quickly).

Though technically not "session lows" Fannie 3.0s are at their lowest levels since the first few minutes of the session, back to unchanged now at 105-09. For some lenders, this is at least 4 ticks weaker than prices that prevailed when the first rate sheets of the day came out.

This increases negative reprice risk though we wouldn't expect a mass exodus from today's rates considering we continue to rest on a pivot point at yesterday's best levels. In other words, some lenders might reprice for the worse here, but not it's not a foregone conclusion unless we dip more meaningfully into yesterday's range.

Starting at 11:10am, Equities and the Euro sold off and domestic bond markets rallied (seemingly in response to the equities-led sell-off). The spike down for equities could be chalked up to several potential factors including a think tank report that suggests the ESM can't fund a Spanish bailout this year and simpler events like the European market close or tradeflows/technicals (both S&Ps and the Euro broke technical supports on the move and several large trade tickets popped up between 11:10 and 11:30 in several markets.

Whatever the case, it's clear that the herd was spooked by something at 11:10, and the ensuing trading was temporarily beneficial for MBS. Fannie 3.0s spiked to 105-18 before falling perfectly back in line with the existing sideways trend du jour (roughly 105-11 to 105-14).

With Europe out for the day now and lunch time rolling across the states, it's fair to expect volumes to continue to dwindle unless some serious inspiration makes an unexpected appearance. As volumes dwindle, we'd HOPE to see the sideways grind merely, well... grind sideways right on out the door, but late day liquidity can be a problem for MBS, so don't tune out just yet if you're on the fence with a lock.

On a final note, if you do happen to be on the fence with a lock, keep in mind that origination volumes are naturally higher this morning as originators take advantage of the best price levels of the week and an extra bit of welcome relief from stagnant pricing earlier in the week. Some lenders can actually reprice negatively in such situations in order to throttle inbound lock volume. This is uncommon, but it does happen on some Friday afternoons among a few lenders.