MBS Pricing Snapshot

This is far from a clear-cut negative reprice scenario as there really isn't much by way of actual trading happening in MBS this afternoon. Quote activity is choppy and sparse at best, but what has made it through is a bit weaker. Fannie 3.0s are down 2 ticks on the day at the moment at 102-27. This is essentially in line with, or better than the print time for most of the day's rate sheets, suggesting limited negative reprice risk. That said, for those planning on locking today, these moves most likely close the door for additional positive reprices between now and cut-off.

European markets--particularly German Bunds--led a decisive bounce heading into 5pm GMT (1pm Eastern). This resulted in another bounce around the 1.90 level for US 10's and 103-00 in Fannie 3.0 MBS. We'd note that, while "decisive," the decision in question was fairly small, and only resulted in a few ticks of movement among any markets paying attention.

Fannie 3.0s pulled back and leveled off around unchanged levels (102-29 currently) and 10yr yields are 1bp improved on the day at 1.9094. While we did see a few positive reprices earlier this afternoon (and while the possibility lingers) they're slightly less likely at current levels, which are very much in line with yesterday afternoon's range.

Already small volumes have gotten smaller and there's been little by way of digestible news with Europe done for the day. Equities markets are taking another run at 1560 in S&P's (currently 1560.71 after hitting intraday highs at 1562), but the stock lever hasn't been connected enough for this to be adversely impacting bond markets. In fact, both sides of the market have been improving since 1:20pm.

After the gradual drift higher that began at 10am, bond markets have recently found some incremental benefit from a few European headlines. The first of these was that ALL banks on the island of Cyprus will be subject to capital restrictions. Across the Mediterranean, a Berlusconi official reiterated what was already known, that Italy would head back to elections if the a new government isn't formed.

While the latter had less of an impact than the former, it has nonetheless benefited from timing. In other words, by causing a bit of extra bullishness at what were already the day's best levels, it had a bit of snowball effect for tradeflows. Add to that the ongoing resistance seen in equities markets (S&P's hitting same ceiling around 1560 againd and again and again) and the situation has shifted from tepidly positive to something slightly better.

Based on the distance from opening levels, positive reprices are a possibility (Provident already repriced, but that was nearly an hour ago and unrelated to the recent positive shift). Fannie 3.0's are up 3 ticks now at 102-31 and 10yr yields are down 1.5bps on the day at 1.9042.