MBS RECAP: Calm, Quiet Day Spent Holding Friday's Gains

MBS Pricing Snapshot

The majority of today's trading in MBS has taken place in a 3 tick range between 104-10 and 104-13, with current prices at 104-11. Despite the strong, steady prices, we just saw one negative reprice. Motivations can only be guessed at, but certainly a contender would be "pipeline control" after potentially high "relief lock" volume on today's "best of 2013" rate sheets.

Not all lenders are necessarily back down to January 2nd levels today, but most are close. Some lenders "throttle" inbound lock volume by raising rates, though not frequently. Is it a sign that we could see more like this in the next few hours? Only 1-2 lenders are even possibilities for such a thing at current price levels. We'd still need to see a marked break below 104-10 before there would be any hint of negative reprice risk due to MBS Price movements.

Without much by way of headline cause & effect, bond markets have leaked into their weakest territory of the day with 10yr yields pushing the mid 1.86's and Fannie 3.0's down to 104-10, 4 ticks from their earlier highs.

Both MBS and Treasuries weakened somewhat during Obama's address which centered on the upcoming debt ceiling debate, but several Fed speeches were also out during that time, perhaps giving markets a bit more to consider ahead of Bernanke's speech tonight.

Current levels are probably best-viewed as a sort of line in the sand. At or above these prices, reprice risk is minimal, if it exists at all. It could begin to increase if we dip to 104-09 or below. All that having been said, markets aren't terribly active and trading hasn't been terribly directional--prefering instead to grind sideways at these lows of the day (lows that are still 2 ticks better than Friday's close).

(Reuters) - The Federal Reserve will need to continue with its bond-buying program for most of the rest of this year as it tries to push down borrowing costs and an unemployment rate that is still too high, a top Fed official said on Monday.

"The Fed must do what it can to help the economy improve," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery to the SEMI 2013 Industry Strategy Symposium. "I anticipate that continued purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of 2013."

Last month, the Fed ramped up asset purchases aimed at spurring growth and pledged to keep interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation expectations do not climb above 2.5 percent.

Williams -- who used his vote last year on the Fed's policy-setting panel to support those decisions -- said he sees the U.S. economy growing 2.5 percent this year and a little under 3.5 percent next year. Unemployment, which registered 7.8 percent in December, will likely stay at 7 percent or above through the end of 2014, he said. And with labor costs low, he said he sees inflation likely to come in at 1.5 percent and stay below the Fed's 2 percent goal for the next few years.

Williams' economic forecast shows that he sees the Fed keeping rates near zero into at least 2015, in line with the U.S. central bank's own guidance on low rates.

"We will keep rates low as long as needed to promote recovery and move toward our goals of maximum employment and price stability," Williams said.