MBS Pricing Snapshot

As we'd hoped, it has indeed been the stock lever that has had the biggest impact on bond markets into the afternoon, despite the post-5yr-TIPS auction gyrations. The former has just shown its hand as equities break to new lows on the day. Bond markets are following, and even if 10yr yields aren't quite there yet, MBS are.

Fannie 3.0s are at new highs for the day, up 4 ticks at 104-10. This isn't too terribly far from morning rate sheet print times, but may indeed be enough for the early crowd to be ruminating on positive reprices. It will take bigger gains for the majority to get involved though, and in either case, probably a bit more time.

Perhaps most importantly, we're still troubled by the failure to break the technical floor in 10yr yields and the underlying frustration that may continue to cause for any potential MBS rally. This tempers broad-based positive reprice potential more than anything as long as it continues to be the case. At 1.683 currently, 10's are right on the edge.

In case you were wondering what the recent spike lower and higher in MBS was all about, this is one of those uncommonly big reactions to a TIPS auction... While it did send a quick shockwave of measured weakness through MBS and Treasuries, prices and yields are back in line with pre-auction levels already.

That may be a passing phenomenon or it may hearken some additional weakness in the immediate future. Levels were fairly flat from 11am to 1pm--essentially ready and waiting for a reason to move. Thus far, the higher-than-expected yield and weaker-than-expected demand at the auction have provided that reason, or at least it seems that way.

We also have equities markets moving higher off some sideways trending at 12:30pm, and on a day and week where the stock lever has been well-connected. Bottom line: the auction caused the more abrupt volatility but isn't justification for a continued sell-off of its own accord. Stocks, however, might provide such a justification (in addition to the technical resistance in play as 10's continue to be frustrated by attempts to break 1.683 for more than a few minutes so far this week and MBS struggle with a move through the 104-07 / 104-11 zone.

Fannie 3.0s are currently down 1 tick on the day, perfectly in line with most early lenders initial pricing, but 3-4 bps off lenders who priced at the highs just after 10am. This would only increase negative reprice risk for the most aggressive lenders, and even then, we're still probably not quite there yet, save for maybe one particular lender. On the other hand, we would stay tuned at this point as a break above 1.7 in 10's likely coincides with a break to MBS levels that would be more conducive to negative reprice risk.