MBS RECAP: Back To Friday's Levels On Election Day Volatility

By: Matthew Graham
MBS Live: MBS Afternoon Market Summary
In the context of the context of the past 3 weeks, current prices in production coupon MBS aren't that bad.  In fact, we're headed out in better territory than most of the 2nd half of October in Fannie 3.0s.  But in and of itself, today saw a fairly abruptly sell-off for MBS, and one that feels all the more abrupt in the context of last Friday's rally and yesterday's calm extension of that rally.  Even though it does little to mitigate the frustration of today's losses, the context is important for MBS and Treasuries alike.  Both managed to hold within broader trends that are actually moving in a POSITIVE direction.  Does today's sell-off have to do with election day?  Almost certainly, but it isn't necessarily anything more than defensiveness.  In other words, if markets were fully pricing in a Romney victory, we'd expect them to be moving more than they are now, and testing a break to weaker territory outside these intermediate trends.  Then again, we could be reading way too much significance into election day and low-volume trading, but either way, we won't know until tomorrow (hopefully).
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
104-19 : -0-17
FNMA 3.5
106-10 : -0-11
FNMA 4.0
106-31 : -0-08
FNMA 4.5
107-27 : -0-04
GNMA 3.0
106-03 : -0-16
GNMA 3.5
108-19 : -0-13
GNMA 4.0
109-11 : -0-08
GNMA 4.5
108-21 : -0-04
FHLMC 3.0
104-09 : -0-17
FHLMC 3.5
105-31 : -0-11
FHLMC 4.0
106-17 : -0-09
FHLMC 4.5
107-03 : -0-04
Pricing as of 4:08 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.

2:11PM  :  ALERT ISSUED: Negative Reprice Risk Ratchets Higher Still As MBS Hit New Lows
Both MBS and Treasuries just ratcheted to their weakest levels of the day and the move was backed up by decent volume in Treasury futures. Fannie 3.0s are down 17 ticks on the day at 104-20 and 10yr yields rose to 1.73, nearly 5bps higher on the day. Equities haven't participated in this most recent move to the same extent as the early move just after 11:30.

Negative reprices have been trickling in since the last alert, but it's fair to expect that additional lenders would jump on that bandwagon if current prices are maintained or deteriorate further. Whether or not that proves to be the case remains to be seen as bond markets have now reached (and exceeded a bit) a moved back to the midpoint of their November range.
11:48AM  :  ALERT ISSUED: Stock Surge Keeps Pressure On Bonds. Reprice Risk Increasing
Fannie 3.0 had been holding their ground fairly well in the face of general weakness so far this morning. Broader bond markets had even been doing a fairly good job of disregarding stock market gains through 11:30am, but that could be changing now.

Stocks have surged since 11:36, and the move has been big enough to put noticeable pressure on bond markets. 10yr yields are up about 1bp in the past 15 minutes and MBS are starting to look more like they're "trending lower" as opposed to holding ground.

Fannie 3.0s just hit 104-26, their lows of the day. At this point, negative reprice risk is up slightly and will continue to increase the longer we remain at these levels or fall further.
11:23AM  :  ALERT ISSUED: MBS Trying To Hold Ground At Morning's Lows, Succeeding For Now
Some weakness has set in since the 10am hour, but so far Fannie 3.0s have done a decent job of holding the line at their lows of the day of 104-27. The range has been fairly narrow with prices holding mostly within the 4 ticks between 104-27 and 104-31.

Given that narrowness and the nearness to rate sheet time, we're probably not at high risk of negative reprices at current levels. That said, a break below 104-27--if it occurs any time soon--would look like some sort of continuation of a selling trend that began just before 10am.

Stocks have been gaining, but broader bond markets haven't been chasing the stock lever and 10yr yields have actually put in a few lower highs and lower lows since 9:15am. That's somewhat comforting when taken in conjunction with the ground-holding in MBS. Bottom line, price movements suggest vigilance but not an appreciable increase in negative reprice risk.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Eric Franson  :  "2nd of the day for WF."
Eric Franson  :  "REPRICE: 3:11 PM - Wells Fargo Worse"
Matt Hodges  :  "REPRICE: 3:07 PM - BB&T Worse"
Steve Chizmadia  :  "REPRICE: 3:07 PM - Icon Wholesale Worse"
Steve Chizmadia  :  "REPRICE: 2:51 PM - Pinnacle Worse"
Victor Burek  :  "REPRICE: 2:50 PM - Nexbank Worse"
Justin Dudek  :  "REPRICE: 2:49 PM - Everett Financial Worse"
Jason York  :  "REPRICE: 2:47 PM - Fifth Third Mortgage Worse"
Matthew Graham  :  "http://tinyurl.com/co8rhnu "
Matthew Graham  :  "notably, 10's have retraced more or less perfectly to a longer term trend channel beginning with mid-October highs"
Matthew Graham  :  "1.75-ish is the next pivot in 10's and 104-14 in Fannie 3.0s"
Jason Anker  :  "whats our tech level floor?"
James F  :  "REPRICE: 2:41 PM - Provident Funding Worse"
Bryce Schetselaar  :  "That was the 2nd reprice of the day"
Bryce Schetselaar  :  "REPRICE: 2:31 PM - Sun West Mortgage Worse"
Adam Quinones  :  "quit freaking out. volume is way low."
Thomas Quann  :  "What the heck is going around here? Its not like America is being tipped upside down on its head today"
Matthew Graham  :  "REPRICE: 2:27 PM - Plaza Worse"
Steve Chizmadia  :  "You know it's a ugly day in MBS when Guild has a inter-day reprice for the worse, which they just did"
Kunal Khanna  :  "So far today it looks like the market is predicting a Romney win."
Ken Crute  :  "as promised Election Day= market mover"
Matthew Graham  :  "though the fact that stocks have leveled off while bond markets continue to weaken would seem to go against the notion of "Romney hedge." "
Matthew Graham  :  "Romney hedge, probably. "
Jason Anker  :  "election jitters? what gives"
adam elway  :  "REPRICE: 2:02 PM - USBank Worse"
Eric Franson  :  "REPRICE: 1:51 PM - Wells Fargo Worse"
JRS  :  "REPRICE: 1:34 PM - Suntrust Worse"
LSP  :  "REPRICE: 1:32 PM - PennyMac Worse"
Matthew Graham  :  "2-3yr Auctions are pretty well off the radar for now. They haven't been moving markets. Just posting as a matter of continuity."
anthony vandyke  :  "MG, is that good, bad, or could have been better?"
Matthew Graham  :  "RTRS- U.S. 3-YEAR NOTES BID-TO-COVER RATIO 3.41, NON-COMP BIDS $44.99 MLN "
Matthew Graham  :  "RTRS- U.S. SELLS $32 BLN 3-YEAR NOTES AT HIGH YIELD 0.392 PCT, AWARDS 82.78 PCT OF BIDS AT HIGH "

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