MBS Pricing Snapshot

Fannie 3.5's just crossed the 103-10 pivot point for the first time today. An earlier bounce was easier to shrug off as a by-product of scheduled Fed Twist Buying, but things are a bit more serious this time.

10yr yields are close to their highs of the day but not yet breaking into new, weaker territory as MBS have. If 10's break higher (over the mid 2.01's), MBS will have a harder time bouncing back from this, but it's just a bit too soon to rule out a fairly big technical bounce back in a friendlier direction.

In the meantime, while bond markets try to figure out which way they're going, negative reprice risk is elevated. These aren't levels where we'd expect a majority of lenders to reprice, but some might. More serious reprice risk under 103-10 and falling. For now, we're basically testing 103-10 for support.

We've seen the day's biggest jolt of volume and volatility at the 11am conclusion of the scheduled Fed Twist buying in the 2036-2041 maturities. While the total amount bought of $1.83 bln is slightly higher than the mid-point of the scheduled range (1.5-2.0 bln), it was weighted toward the shorter end of the maturity offerings.

It's not uncommon to see the most active volume and volatility of the day as bond markets briefly adjust prices/yields with the added clarity of knowing how the Fed conducted the day's scheduled buying. In today's case, yields are settling just barely under earlier morning highs around 2.01. Fannie 3.5 MBS briefly touched 103-10 and are back now to 103-13.

Although there's a slight bit of negative reprice risk suggested in the recent run down to 103-10, the most pronounced risk lies below that point. We'll assume the 11am drop to be Fed-related and ramp up our level of concern if prices head back to 103-10 or below. As always a few of the jumpier lenders might consider repricing for the worse on the way down to 103-10, but a majority of lenders aren't at risk of repricing unless we're moving lower from there.