MBS RECAP: Attempting To Consolidate After Wednesday's Sell-Off

MBS Pricing Snapshot

Highlights:
- Net Purchases $15.3 bln vs $15.1 bln previously
- Allocations roughly similar with some 'up-in-coupon' exceptions.
- Fannie 2.5's dropped to $100 mil from $350 mil previously
- Fannie 3.5's rose to $700 mil from $450 mil previously
- Other than those 2.5's and 3.5s, everything else in 30yr Fixed GSEs was 3.0s (total of $8.85 bln) Full breakdown and link to archives

Fannie 3.0s are only 3+ ticks in the red now compared to 7 ticks earlier today (101-19 vs 101-15). Simply holding sideways just under these unchanged levels has been enough for a few lenders to come out with positive reprices, but it's important to note that those reprices aren't indicative of a bullish shift in today's trend.

On the bright side, the ground-holding is now the longest-standing instance of "flat-to-improving" prices we've had over the past two sessions, and for that, we're thankful. Other lenders may express their thanks the longer it continues to hold.

10's are still about a bp in the green at 2.0298 but have seen 2 decent supportive bounces at and just under 2.05. We're not putting this out as a positive reprice alert, however, because we're not especially confident that the uptrend continues, and to a lesser extent because other lenders may have yet to negatively reprice (though they'd be very late). We're still not out of the woods.

(Check out the charts in the Agenda HERE. The NY Fed is forecasting 3.5% growth in 2014. Plenty of other interesting charts as well.)

As we did last year around this time, we’re presenting the New York Fed staff outlook for the U.S. economy to the Bank’s Economic Advisory Panel at today’s meeting. It provides an opportunity to get valuable feedback from leading economists in academia and the private sector on the staff forecast; such feedback helps us evaluate the assumptions and reasoning underlying our forecast and the risks to it. It’s important to open the staff forecast to periodic evaluation to inform the staff’s discussions with New York Fed President Bill Dudley about economic conditions. In the same spirit of inviting feedback, we’re sharing a short summary of our forecast; for more, see the material from the Panel’s meeting.

The forecast anticipates moderate economic expansion over the next two years. Real GDP growth in 2013 is expected to be around 2½ percent, slightly below the rate in 2013:Q1 as well as below our year-ago projection of about 3 percent. A major factor behind the projected sluggishness over the rest of this year is fiscal policy. The combination of sequestration and the tax increases associated with the agreement to avert the “fiscal cliff” is anticipated to exert a significant drag on GDP growth of more than 1 percentage point. In 2014, the fiscal drag is expected to be smaller than in 2013. With a smaller fiscal drag, an expected further lessening of other headwinds—for example, the European sovereign debt crisis and the deleveraging of household balance sheets—and further improvement in labor market and financial conditions, we project real growth in 2014 of around 3¼ percent.

MBS are down another quick few ticks after the Fed's POMO results with Fannie 3.0s off 7 on the day now to 101-16. Treasuries just broke their higher of the day with 10's moving to 2.043. Negative reprices are now probable vs "possible" previously.