MBS RECAP: Drifting Uneventfully Into Weekend

MBS Pricing Snapshot

Just a heads up: the previously hopeful "Bullard bounce" didn't garner any follow-through in bond markets. 10's are back at their highs of the day and MBS are close to their lows. Negative reprice risk remains a moderate, lingering concern, but more so among those lenders who have histories of repricing late on Fridays when MBS prices might not necessarily justify it. Fannie 4.0s are down a tick at 103-07, but liquidity looks to be lightening up for the weekend. More importantly, if you were planning on locking today, positive reprices are almost certainly out of the question.

Plosser strummed:
♫ I don’t want to do it all at once, but I think we should begin to taper very soon and hopefully end it by the end of this year. I’d like for us to start in September.♫

But Bullard Bit Back with this Banjo Backfire:
♫ Pulling back on accommodation as inflation is sinking is not the right combination,I’d like to see us do more to ensure inflation doesn’t continue to slow.♫

Confused city folk stood by their cars watching the the two go at it. Bond traders hadn't but heard the first few notes of Plosser before selling into 'reprice' territory over the past hour, but are now finding Bullard's dulcet tones reason enough to start tapping their feet.

Fannie 4.0s are back in the green to the tune of 4 ticks at 103-12 and 10's are now unchanged vs 5pm levels at 2.57. Negative reprices have been trickling through until just recently, and some may be lingering, but the bounce in prices here makes them less likely from lenders who hadn't already put one out.

To be clear, there's no stampede back to the highs of the day, but neither is there a wanton sell-off into the afternoon (and hopefully we'll be able to say this in 3 hours as well)!

Unless things change course quickly, we've quickly flushed out all of the days gains. Fannie 4.0s now down to 103-07, 1 tick into negative territory. Lenders priced when we were 6-9 ticks into positive territory, so expect negative reprices if we stay here, and quicker lenders will be out with them any minute.

In progressive steps since the Fed's scheduled buying operation beginning at 10:15am, investors have started paring positions ahead of the weekend. The most recent pop was a bit more abrupt than the range-trading that preceded it. 10's are up to 2.576 and Fannie 4.0s are down to 103-09. Negative reprices are possible for most investors.