MBS Pricing Snapshot

Perhaps a slightly improved outlook for positive reprices here as equities markets have given up their entire day's range and don't have enough time to bounce back to previous lows ahead of the 1pm close. Fannie 3.5's are up 12 ticks on the day at 105-01, in the "reprice zone," as are Fannie 3.0's at 102-14. This helps the chances to eke out a few additional positive reprices, but being late in the session and relatively low in volume numbs the response among lenders to some degree. Stocks are already bouncing back in early after-hours trading, so if they continue to do so, bond markets might not hang out here as long as we'd like. Bottom line: relatively inconsequential, but slightly positive late-day development for bond markets. We'll let you know if that changes significantly.

Markets pretty much got no more and no less than they expected from the Fed Chairman today, and trading has ensued accordingly, with 10yr yields shying away just slightly from their major pivot point between 1.67 and 1.68, currently at 1.652.

MBS, after shaking off a bit of volatility after rising to their highs of the day, have been sideways and well-contained near those highs. For Fannie 3.5's, this has been about a 9 tick gain on the day centered on 104-29 and Fannie 3.0's at 102-12.

The extent to which a marked reaction to Bernanke is absent comes as a surprise and we get the sense that market participants are looking at each other, shrugging, asking "what now?" Healthy clip of domestic econ to continue shaping Fedspectations next week? Culminating in Greek vote Sunday ahead of FOMC Announcement the following week? That would mean the dueling banjos of Fed Policy and Euro-drama would be following their sheet music very closely. And that just feels like too much "orderliness" to hope for these days. Nevertheless, it happened today.

From MBS MID-DAY: "Bond markets had strengthened somewhat after the initial release of the speech but to attribute it to the speech itself could be a bit misleading. In actuality, bonds were stronger this morning until newswires just before 9:30am made it seem as if Germany's Merkel was implying that NEW financial instruments--assumed to be some iteration of the hot-topic "Eurobonds"--had been created. Bonds weakened, stocks rallied, until markets learned (or rather, "figured out") that Merkel was simply referencing instruments that "had already been created." Markets then corrected to previous levels and the Bernanke Testimony/Q&A has been largely uneventful, but if anything, slightly positive for Treasuries and MBS."

No genuine surprises in the Q&A, and bond markets are getting about as much 'love' as they could hope for in the sense that Bernanke continues to reinforce the committee's readiness and commitment to do "something" if needed. He's playing it pretty close to the vest, but viscerally, it seems to have a bit more gravity with comments such as Ben's reminder that "we have the authority to provide liquidity against collateral, and the Fed stands ready to use that authority."

Little has changed about trading levels with 10yr yields remaining squarely in a 1.62-1.68 range, outlined as the closest, tamest pivot points in our Day Ahead post. Fannie 3.5's are up 5 ticks at 104-27 and Fannie 3.0's are up 6 ticks at 102-10. A couple of the "early crowd" lenders have repriced positively in recent minutes, but MBS prices have headed back toward more middle ground in the intervening minutes. Needing to be closer to 105-00 in Fannie 3.5s, to see more.