MBS RECAP: Cruising Altitude Sustained After AM Turbulence

MBS Pricing Snapshot

After making a relatively convincing run weaker in price between 10am and Noon, MBS leveled off and held a tight sideways range around 104-07 in Fannie 3.0s--right in line with Friday's highs and a well-traveled inflection point of late. It held up as support in conjunction with 10yr yields finding similar technical support at 1.703 and both have improved since then (10's are down to 1.693 and Fannie 3.0s are up to 104-09).

These are small movements in the grand scheme of things and are even small in the context of today's trading range. The important thing, however, is that they stem the tide of whatever selling momentum was building into the afternoon. Even if they don't result in a bigger move to higher MBS prices, they help counteract what had previously been increasing negative reprice risk.

Stocks and bonds bounced together at 10:37am, and in no unspecific terms. Since then, stock prices and bond yields have been rising fairly steadily and MBS prices have fallen from 104-11 to 104-07 in Fannie 3.0s. While this is still 2 ticks into positive territory on the day, it's also 4 ticks from the highs, and unfortunately for the reprice outlook, some lenders' initial rate sheets coincide with MBS price highs.

Merely being 4 ticks off those highs isn't cause for major concern, but the trend is troublesome. We have this broad, swooping move in multiple markets, and over a quarter of a point higher from the open in MBS, followed by a clearly defined bounce. This brings us to the leading edge of negative reprice risk for a very small subgroup of lenders.

The bigger reprice risk would come if the bounce continues. More lenders would be at risk of negative reprices below 104-06. We're teetering on the edge for now--still in positive territory and still probably in a situation where few, if any would pull the trigger just yet. But stay tuned! The past few bounces off 1.68 levels in 10yr Treasuries have seen 10's move up to at least the mid 1.71's, and such levels would probably coincide with another few ticks of weakness for MBS.