MBS Pricing Snapshot

The afternoon has been more volatile than average for bond markets and MBS are quickly getting back to defense mode after being on offense heading into 1pm. At that time, Fannie 3.0s were hitting 104-11 and are now back down to 104-05. With the most recently reported positive reprices not even half an hour old, we're already edging into territory where that reprice risk shifts negatively for any lenders who repriced during the highs.

That's a bit of a stretch at 104-05, but could materialize if we fall from here. Whatever the case, volatility is elevated, positive reprice potential is clearly off the table, and we're now hoping that the V-shaped bounce just before 1pm in 10yr Treasuries doesn't continue back to morning levels. The 3pm pit close just snuck in under the 1.702 pivot point, which is technically positive, but doesn't get us out of the woods completely.

Prepared at the Federal Reserve Bank of Dallas based on information collected on or before April 5, 2013. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from late February to early April. Activity in the Cleveland, Richmond, St. Louis, Minneapolis, and Kansas City Districts was characterized as growing at a moderate pace, while the Boston, Philadelphia, Atlanta, Chicago, and San Francisco Districts noted modest growth. The New York and Dallas Districts indicated that the pace of expansion accelerated slightly since the previous Beige Book.

Despite a series of headlines about suspicious packages intercepted en route to US political leaders, early afternoon swings in US markets were more likely led by the collapse of European markets into the end of their trading day. Bunds rallied and Euros sold off aggressively just after 10am. US Treasuries and equities followed the "risk-off" move. 10yr yields briefly hit their lowest levels of 2013 and Fannie 3.0 MBS (May coupons) hit their highest levels of the month (previous highs near 104-19 were April coupons--so "highs of the month" is a bit of technicality).

The rally follows a previous pivot at 1.70 in 10yr Treasury yields. After breaking 1.702 earlier this morning, 1.697 was hit repeatedly as a supportive ceiling. The rally picked up steam after the noon hour and now has a new intraday ceiling to consider at 1.686. If that holds, MBS look keen on holding 104-09, and that would very likely lead to some positive reprices.

Even now, positive reprice potential is better than average, with some lenders likely just waiting to be sure we don't snap back to previous levels. Moving below 104-08 would likely dampen the positive reprice outlook.