Yes it's Friday. Yes, volume is low. Yes, it's after 12:00 noon. Yes, flows at this time of day are seldom indicative of Monday's action, or at least not indicative of the magnitude of momentum we're experiencing today. That momentum is noticeably awful. 4.5's have extended back to their lows of the session at 100-13.
It's interesting to note that the exact point at which we bottomed earlier today and again just now is also the exact point that had capped us out on the upside over recent weeks. Perhaps it's not so much "interesting" as it is understandable since we're once again encountering support from a price level that had recently served as firm overhead resistance.
As is always the case when we hit lows of the day, reprices for the worse are a risk. Combine that with the fact that the lows of the day are now reached after falling more than 8 ticks and you have a guaranteed recipe for reprices. The only exception to this would be among lenders who have either already repriced for worse conservatively or those that hedged the crap out of earlier rate sheets today.
Either way, you're big boys and girls and can see where prices were, where prices are, and can divide the number of ticks by 32 to determine about how much YSP should come out of the market by the end of the day. So take a look at where you were at, where you are now, and adjust accordingly. At the end of the day however, I'm not sure who this post really applies to because if you didn't lock on the uncharacteristically cautious lock recommendations earlier this week and even late last week, you may have lost your lock request logins.
Ok a bit of sarcasm there, but seriously folks, this is the correction we've been pontificating about for a few days now. So the take-away is to adjust short term hedge ratios. Probably the least obvious message here, however, is that the notion of "not panicking" is edified by the levels of the bounce. If prices were under 100-13 right now, we might be more concerned about meaningful selling in the days to come. But as long as we're over that level, this correction remains short term and range-bound in nature.
Bottom line, last week and this week's numerous cautions against continued floating should have served to adjust your hedge ratios to the conservative side to the point where the risk of today's losses were accounted for. From there, we might have the inclination to adjust even further owing to today's losses. But just as AQ said "don't panic," THE FACT THAT WE ARE BOUNCING AT PREVIOUS CEILING LEVELS (and on a Friday afternoon ahead of a 3 day weekend no less), SUGGESTS THAT THOSE CONSERVATIVE HEDGE RATIOS SHOULD HAVE SERVED YOU WELL INTO TODAY'S DATA AND THAT NO DRASTIC REACTION TO TODAY'S WEAKNESS IS WARRANTED UNLESS WE FIND OURSELVES EITHER MEANINGFULLY UNDER 100-13 TODAY OR EVEN SOMEWHAT UNDER 100-13 ON TUESDAY.
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