MBS Pricing Snapshot

Negative reprices are possible at current MBS levels, though Fannie 3.5's are still 1 tick higher on the day at 103-15. We'd earlier identified 103-17 as the first potential risk level and would like to emphasize just how non-threatening of a sell-off this is. Fannie 3.5's have only really traded between 103-18 and 103-20 (with rare exceptions) since 10am--so being off just a few more ticks is relatively inconsequential. The chart makes things look a bit more dramatic than they are due to the narrowness of the two-session range (103-11 to 103-22).

That said, historical examples of similar price movements have elicited negative reprices from a few lenders. We're not in panic mode, but reprice risk is slightly elevated. There is no "news" or events materially driving this weakness. Volume and liquidity are light and getting lighter.

We're running out of fingers to count the times that 10yr yields have poked and prodded 1.95% today. Yields can only fail to break lower so many times before they have to go somewhere else. With 1.95% being the lowest level tested since early March and Stocks making up a majority of their losses since the open, why not swing in the other direction?

The "swing" is fairly minor so far and has merely resulted in a move up to 1.963 in 10's. MBS Experienced this pull-back in the form of Fannie 3.5's falling from 103-21 to 103-18 and currently trade at 103-19--not quite enough drama to be concerned about negative reprices. There's a clearly delineated pivot point between this morning's highs (also Friday's) and the rest of today's range. We'd need to be below that pivot point and falling to be much concerned for potential reprices (around 103-17).

Beyond that, nothing too exciting is happening. The range has been narrow and volume on the light side. Those facets of today's trading makes things less exciting, but they also leave us somewhat vulnerable to any higher volume selling pressure into the last few hours of the day. We wouldn't tune out just yet...

(Reuters) - U.S. Treasuries rose on M onday as worries about the euro zone, particularly Spain's rising cost of borrowing, fed demand for safe-haven U.S. government debt.

Spanish 10-year government bond yields broke through the 6 percent mark for the first time since the beginning of December. Spain has acknowledged that it has probably tipped into its second recession since 2009.

That situation drew investors to safe-haven assets like German bunds and U.S. Treasuries, keeping the benchmark 10-year Treasury note yield at 1.96 percent.

"Debt and growth conditions in Europe are weakening and Treasuries have extended recent gains as Spanish bond yields extend recent losses," said William O'Donnell, managing director and head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.