MBS RECAP: Back To Recent Lows Ahead Of GDP

MBS Pricing Snapshot

Is it safe to come out yet? Sorry... Still a bit shell-shocked after things began looking decent from 10:30 to Noon only to get smacked back down to the lows in the early afternoon... It's hard to readily accept the fact that a bounce back has materialized into the afternoon, yet here we are with Fannie 3.0s up to 104-08 from 104-03 lows.

That's not much of a bounce, but it does alleviate earlier negative reprice risk AND reinforces a supportive trend at 104-03, which has held on two recent occasions: today and on the 18th. Definitely impossible to read any significance into that beyond this afternoon, but at least for this afternoon, reprice risk seems to be at bay. GDP tomorrow, NFP next week. We'd be reading a lot more into 104-03 support if it continues to hold up through those events, but as always the more significant technical indicator as far as the broad shifts are concerned, would be Treasuries, where the low to mid 1.8's hopefully turn out to be a supportive ceiling.

In the past 10 minutes, bond markets have weakened further with 10's up to 1.8365 and Fannie 3.0s down 12 ticks on the day to 104-03. This takes us out of neutral territory and shifts the risks toward negative reprices if we don't bounce very quickly.

It seems weird to be paying so much attention to stocks considering the various stages of disconnection over the past year, but as long as things stay as correlated as they have recently been, we'll continue to pay attention. Case in point, a show of support and bounce higher in stocks was already putting pressure on bond markets ahead of the 7yr Auction.

For it's part, the auction didn't have much to say about current trading levels with yields stopping right in line with expectations (meaning the stopping yield matched the 1pm when-issued yield. Read more on auction jargon HERE). Rather, it was a roughly 6 point rally in S&Ps from 12:45pm to 1:03pm that nudged yields slightly higher and MBS prices slightly lower.

Before that, stocks were already grinding it out as they approached longer term pivots near 1400 in S&Ps, and did a good job of holding support there. Stocks got their first bounce just before noon, and it's no coincidence that we wee MBS top out right around the same time.

As stocks continue to bounce, bond markets continue to back down with 10yr yields up to 1.8259 and Fannie 3.0s down 9 ticks on the day at 104-07. What had been a decent environment for positive reprice risk is now at least back to neutral. Additionally, lenders who repriced for the better might have to consider recalling if we return to the morning range.

A certain measure of vindication now for those of us who fired up the screens this morning only to find a vast sea of RED for bond markets. Well... it's still all red, but now a mere lake.

Whether or not we progress towards "puddle" status or perhaps even turn green, remains to be seen, but for now, bond markets have bounced back fairly well, incessantly chasing a much more determined sell-off in stocks.

Fannie 3.0s are down only 3 ticks on the day now at 104-12 but if you're reading this update, you might want to check the live pricing window as things have been moving quickly. Based on the timing of most lenders initial rate sheets, 104-12 would be good enough for positive reprices in a few cases, but given the volatility, most lenders would probably want to see the rally hold its ground for a bit before considering a reprice.

S&Ps are down over 10 points in the past 2 hours and 10yr yields bounced at 1.85 in high volume down to 1.7995 currently. If that bounce continues to hold through the close, it will be a promising technical development on several levels, even if not a surefire guarantee of strength ahead.