MBS Pricing Snapshot

As per the last update, we were just sort of waiting for intraday pivot points to play their cards. They have and we lost this round. the break of 1.94 in 10's resulted in a quick jaunt up to 1.95 and MBS shed their next three ticks fairly quickly. Fannie 3.0s are down to 102-17 and have been trading somewhat choppy between there and 102-18. For lenders who were out with rates before 10am, negative reprice risk is already increasing, even if not "full-blown" yet. We'll let you know if that changes.

After topping out at 8:54am, bond markets have ebbed in a linear fashion, back in the other direction. Equities rose out of the gate and there's potentially a small bit of intraday stock lever in play, but things have been too disconnected on that front to draw any solid conclusions.

Whatever the case, 10's are up from 1.92 to 1.94 since 8:54am and MBS are down from 102-24 to 102-20. Early rate sheets most likely took their marks with Fannie 3.0s at 102-22, so we're not quite into 'reprice risk territory' yet.

On a final note, the 1.94 area in Treasuries is both an intermediate and intraday pivot point (meaning it's been more likely to result in bounces vs breaks when approached from either side). We've seen a good bit of sideways grind between there and 1.938 in the past half hour so the next break higher or lower by more than a few bps could result in a bit of follow-through momentum (to around 1.955 on the upside and 1.918 on the downside).

The latter could pose problems for MBS, where Fannie 3.0s would stand a good chance to move into negative territory, making reprice risk more of a reality.

Treasuries spent most of the overnight session in weaker territory before beginning a grind lower in yield in the few hours leading up to the domestic open. Weaker Yen and Japanese government bonds continued to offer pressure during Asian hours, but European markets didn't play their normal role of reversing said weakness.

German Bunds opened weaker and never made up much ground as peripheral markets tightened (read: Spain and Italy yields fell vs German yields, and anything positive for the periphery has tended to be negative for the core). Lower volume due to holidays in Europe greased the skids for volatility, but the first domestic trading of the day reversed the losses

Treasuries turned positive just before 8am and continued lower to 1.92 just before 9am. They've since bounced up to 1.93 as the day gets underway. MBS opened flat to Friday's close and are now up 6 ticks at 102-23.

Stepping back a few feet and filtering out a relative inconsequential overnight session, you could view this morning's market as a moderate push back against a volatile Friday afternoon. That said, with no data on the calendar and plenty of speculation time ahead of Wednesday's FOMC Minutes (and Bernanke testimony in the morning), volatility can't be ruled out. For now though, confirming a supportive bounce at Friday's lows is "so far so good" with respect to the ongoing set-up of the pre-FOMC range.