MBS RECAP: When Is Strength Actually Weakness In Disguise?

MBS Pricing Snapshot

Just a few minutes before the 3pm close a flurry of activity hit Treasury futures with big trades ostensibly shifting positions from March to June deliveries. In and of itself, that's a normal part of being within a month of the Treasury futures "calendar roll" that happens every 3 months, but either the huge outflow spooked accounts and caused a mini snowball of follow-through, or it was part of a generic weakness because 10's moved a quick 2bps higher and still seem to be climbing while money still looks to be flowing out of TSY futures (connotes profit taking).

MBS haven't much enjoyed that drama with Fannie 3.0s falling from 103-02 to 102-29 in fairly short order. In and of itself, this gap in prices doesn't suggest negative reprices, but as we often note, when a trend emerges that is both "late in the day" and "abrupt," each tick of movement can be a bit more meaningful than if we were assessing gradual ebbs and flows during more liquid times of the morning hours.

Reprice risk is likely mostly at bay for now, though a few of the jumpiest lenders could be close. We'd need a bit more weakness to say that reprice risk is more than outside possibility at a scattered minority of lenders. Here's hoping we don't get back to you with that news in a few minutes!

MBS and Treasuries have both traded eerily narrow ranges so far today and Treasuries have just now broken out to the downside in yield. For 10's the long term technical level of 1.9636 stretches back to July 2012 and provided resistance earlier this morning. Shortly after the 30yr TIPS auction and a mixed batch of Fed-Speak, 10's tested a break of the technical level which has precipitated a mini technical/tradeflow snowball to lower yields (currently 1.9584).

The next echelon of technical resistance comes into play closer to 1.9500, but that horizontal zone is less tidy and precise than the 1.963 mark. For now, we'll take what we can get, and so will MBS, having moved back to their best levels of the day, but not yet through them. Fannie 3.0s are up 8 ticks at 103-02, and this has been enough for a "stability reprice" from one lender even though current prices are only 2-3 ticks better than rate sheet print times.

Additional reprices are possible thanks to the stability--especially if we add on to gains--but not likely to be widespread unless we pick up another 2-3 ticks.