MBS Pricing Snapshot

This may be a situation where we see few, if any negative reprices. At this point only a small minority of the most MBS-sensitive lenders would be considering such things, but the prevailing trend for the past two hours has been a gradual down-tick in Fannie 3.0s from 104-12 to 104-07 currently.

Most lenders released initial rate sheets this morning when prices were only a few ticks higher than they are currently. So from a purely objective standpoint, reprices aren't yet justified. But Treasuries are pushing their high yields, stocks have moved higher over the same time frame and market reaction to upcoming earnings releases after the bell could easily be felt in bond markets.

All of the above having been said, risks are increasing even if not fully materialized. But if you have loans to lock, we'd advocate keeping a close eye on price movements in the next hour.

The spike seen in stocks, bonds, and MBS is very real, but it wasn't based on real news. The news in question is (or "was" rather) a tweet from the Associated Press saying that explosions were heard in the White House and that the President was injured.

With sophisticated black box trading programs purported to execute trades based on twitter keywords, it's no surprise that this particular tweet incited the type of movement that it did. Human beings would react the same way (risk-off trade), except for the fact that that they'd be more skeptical of such a thing.

Skepticism would prove warranted in this case as the headlines were quickly retracted and markets quickly returned to previous trading levels. The only evidence that anything happened is the massive gash across charts around 1:10pm both in terms of price movement and volume. It was the single biggest minute of Treasury Futures volume since March NFP (bigger than April NFP!). That sort of movement is almost never seen outside NFP's or FOMC Announcements with big policy changes.

Incidentally, MBS have firmed up a bit as stocks continue to struggle with the same highs they were struggling with before the fake news drama. 10yr Treasuries took a slight push off their mid 1.70 highs and are down to 1.693 currently. Fannie 3.0 MBS are up 5 on the day to 104-11.

Just after 9:40am, bond markets made a fast move into exceptionally weaker territory. There were several factors in play at the time, including a technical break of 1.683 in 10's as well as pressure from domestic equities and European markets. German Bunds actually made the bigger move but big trades in the US Futures pit were definitely part of the game.

MBS looked a bit caught-off-guard at the time, dropping an uncharacteristically fast 4 ticks, but they've since recovered just over half of those losses. That leaves the current tone a bit more equivocal, with an absence of the "badness" that looked to be setting in ahead of the 10am hour, but still relatively far from earlier highs. Fannie 3.0s are up 2 ticks on the day at 104-08 (previous highs were 104-13).

We saw a good show of support at 1.701 in 10yr yields, which is in line with yesterday afternoon's supportive bounces. As such, we can treat 1.701-1.703 as a good early warning sign of further weakness. The only downside is that at 1.6979, we're already quite close to crossing that line.