MBS RECAP: Boxer Bill Makes PM Rounds, Mixed Blessing

MBS Pricing Snapshot

Now we're getting into the more troublesome sort of afternoon weakness that occurs when Treasuries are leaking into weaker levels after the official close and liquidity is too light for MBS to fight back. Fannie 3.0s are down to 103-11 now and 10yr yields are up to 1.9622. Reprice risk is more pronounced here and we could see more than just the few "early crowd" lenders.

After the 3pm Treasury close, bond markets are under a small amount of incremental selling pressure and MBS continue to struggle vs Treasuries. Fannie 3.0s are 2 ticks into negative territory now, roughly in line with prices that prevailed during the first round of rate sheets today (103-12).

10yr yields are up to 1.9532, right on the pivot point that we were eyeing earlier in the day. As of right now, we're not in the throes of an ugly afternoon meltdown--more like "late day, light liquidity." It's taking a bigger toll on MBS, but doesn't necessarily connote continued selling. That may change, and we'll let you know if does.

The current weakness may constitute a small incremental increase in negative reprice risk for lenders that are either faster to react, or who priced later in the morning.

- Total Consumer Credit up $14.6 bln vs $13.4 bln Forecast
- Revolving credit declined by $3.6 bln
- Non-Revolving rose by $18.2 bln, most since 2001
- Market Reaction: The movement around the 3pm hour was already in the works ahead of this release. It's not traditionally a market mover. Stocks haven't responded, and all bond market movement is assumed to be related to the 3pm Treasury close.

This morning's price action presents a bit of a problem for some lenders. We rallied to what were, at the time, 2-day highs by the time the earliest round of rate sheets came out only to continue rallying through most of the 10am hour (Stocks/Bonds/Euro/Everything bounced between 10:52 and 10:55am). The closer to that time window that an initial rate sheet came out, the more possible the negative reprice risk--a fact that one lender just reminded us of with a reprice despite stabilizing levels around the highs. That lender's rate sheet came out at the worst possible time of 10:54am.

As of right now, MBS are still in the green and Treasuries are trying to fight off a break above an important short term pivot at 1.953 (currently 1.9479). Bond markets are not looking "weak" right now, per se, but any additional selling would change that assessment.

As far as other lenders' reprice risk, take a look at when you got the rate sheet, as well as it's relative strength compared to yesterday. The stronger the improvement and the later the print time (up until the aforementioned late 10am time window), the greater the risk. Beyond that, we're keeping an eye on the Treasury pivot, and would hesitate to rush to lock unless we're breaking noticeably higher than 1.953 and Fannie 3.0s dip into negative territory at 103-13.

The only other consideration is roll-day tomorrow, and it's a Friday. Pricing could be conservative and pricing strategies may vary. Unfortunately that may mean that the better offerings for some lenders would be dependent on this strength/stability lasting into the beginning of next week.