MBS RECAP: Mostly Holding Monday's Impressive Gains

MBS Pricing Snapshot

Fannie 3.0s are down 4 ticks on the day at 103-15 as Treasuries have followed equities higher into the afternoon. 10yr yields broke above a short term pivot at 1.874 and are currently finding support at 1.886 as S&P's hit their highs at 1498. 10's are back down to 1.8791 currently, but the afternoon weakness is still playing out and shouldn't be assumed to be "defeated" just yet.

For now, Fannie 3.0s have held at or above 103-15. This is probably just weak enough for the edgiest lenders to entertain a negative reprice, but just strong enough to avoid a majority of any potential reprice risk. A break to 103-14 or below that lasts for more than a tick or two would increase these risks with 103-13 taking things from "possible" to "likely." Bottom line, we're right on the edge for now--probably safe if we fall no further, and increasingly less safe with each tick below 103-15.

It's not a perfect one to one relationship, but the major peaks and troughs in stock prices and bond yields have occurred at exactly the same times yesterday and today. Heading into the afternoon, Treasuries and MBS have given up just a bit of ground, but are actually resisting a relatively more pronounced bounce back in equities. S&P's are roughly 8 points off their lows and 10yr yields have moved up about 1.5 bps. Fannie 3.0s MBS are down 2-3 ticks from noon highs, but aren't in any sort of aggressive selling pattern (net unchanged on the day!).

The 5yr Treasury auction was of relatively little consequence with utterly average results all the way across the page. It was more of an acquiescence to yesterday's move and current uncertainty.

From here on out, the "risk-on/risk-off" trade looks like it's continuing with the most recent moves in equities and bond markets continuing to mirror and match for the most part. If anything, bond markets may be showing a bit of incremental determination over the past 10-15 minutes to hold ground at support levels. This could soon lead MBS into the green and increase positive reprice possibilities. A few lenders have repriced.

1.874 is relevant overhead technical support in 10yr yields. Below there and we're feeling pretty good. Rising above, we're risking a bit of follow-through weakness in MBS. The days previous highs at 103-21 would be resistance for now, with a break above ramping up positive reprice potential. Near term support is right around 103-17. All told, things continue to be surprisingly calm and narrow given the ferocity of yesterday's moves.