MBS Pinata is Out of Candy; Afternoon Volatility Expected

In the spirit of a day where many market participants are leaving early, here's an sneak preview of a recent MBS Live update that would normally appear in the Recap later today--an early "MBS Recap," for those leaving early!  Bond Markets are closed on Monday for Labor Day.

MBS Pinata is Out of Candy; Afternoon Volatility Expected - 2:44PM

Fewer and fewer traders are left to take swings at the MBS pinata at this hour. Some of those swings would move prices higher--some lower. Under normal conditions, when the market has lots of active positions, the proverbial pinata is full of candy, harder to move, and likely to be getting hit from both sides at any given moment.

But with most of the candy having been drained ahead of the holiday weekend, and the number of stick-swingers reduced to essentially zero, anyone who deigns to take a swing is liable to send the pinata flying through the air.

"Stuff like this" was already evident yesterday (look at 2pm in Fannie 4.0), and is even more so today. The implication is mostly benign, especially for savvy market participants who aren't batting eyelashes in the slightest (they're not even watching). But we've historically seen one or two lenders get a bit put-off by the late day volatility and reprice.

Bottom line: the reprice situation is similar to the last alert where it's not impossible, but probably unlikely and absolutely unwarranted. More than anything, the message is that any seemingly silly swings are less than representative of reality.