MBS RECAP: After Decent Start, Bond Markets Succumb To Risk Rally

MBS Pricing Snapshot

MBS are back at the lows of the day and 10yr yields are at their highest levels in more than a week as stocks continue to bounce back from 1:30pm lows. Fannie 3.0s are currently 6 ticks lower than rate sheet time, meaning that if you haven't seen a negative reprice today, they remain possible at these levels.

We're not keen to dole out specific amounts of culpability to headlines and events, but would note that "Risk-On" has generally abated since noon. What in the world does that mean?

Simply put, stocks and bond yields had been moving up, together, while MBS prices were generally under pressure. Everything topped out at noon and arguments could be made for several factors being bigger ingredients than others in the overall turnaround.

For now, however, it's being accelerated by a full-scale sell-off in equities markets. S&P futures shed 7 points in the blink of an eye (a 5-minute blink). While that move lines up best with Bernanke saying the Fed "doesn't have the dools to offset the full harm of the Fiscal Cliff," what's important is that MBS are back up within 3 ticks of breaking even with Fannie 3.0s at 104-28.

For many lenders, this greatly diminishes risks of negative reprices. We may not be out of the woods for the day as far as volatility is concerned, but for now, things have stabilized somewhat.

Risk markets continue to rally on news reports suggesting a potential ceasefire is in the works in Gaza. Although a Hamas official was out earlier saying that an Egyptian-brokered ceasefire would go into effect at 2200 GMT, CNN reports suggest that Israel has denied the ceasefire is a done deal.

Elsewhere, Greece is closer to getting its next installment of bailout cash as a Eurozone Finance Minister says they are close to approving the political terms necessary for their final approval.

Fannie 3.0s are down 5 ticks on the day now to 104-26 while 10yr yields and stock prices surge. In and of themselves, MBS prices haven't lost sufficient ground since the last alert to warrant additional reprices, but the acceleration of the broader "risk-on" movements increases the chances for negative reprices for now. This may change quickly if prices bounce back quickly.