MBS Pricing Snapshot

MBS in the green now and Treasuries down a quick 1-2 bps and change after the following wire:

RTRS - GERMAN GOVERNMENT OFFICIAL SAYS THERE WERE NO DISCUSSIONS AT G20 MEETING ABOUT ANY PLANS TO USE EU'S RESCUE FUNDS TO BUY THE BONDS OF CRISIS-HIT MEMBERS

This one has more shock value than staying power but at the very least is helping reinforce the digging in of heels that was already underway since the weakness bottomed out just before 2pm. We'll see where it goes from here, but so far, so good for MBS and Treasuries.

Benchmarks are sliding higher in yield with 10's just breaking over a trendline at 1.63. Seeing some pressure on MBS and a bit of a snowball developing in Treasuries. Fannie 3.5's are only down to 105-02 so far, but 3.0's are a bit worse off, currently at 102-16. If MBS and Treasuries were all to bounce convincingly back into stronger territory right away, we might avoid any negative reprices, but if current levels are maintained, or get any worse, negative reprices are possible. We'd throw in a caveat here about the timing of the initial rate sheet of a lender in question. Many rate sheets came out when MBS were trudging about in their morning lows, thus insulating us a bit better from reprice risk. In that sense, you'd only have the "psychology factor" to worry about, which requires some knowledge of the lender in question. (Psychology factor meaning that some lenders have been known to reprice just because markets make a medium-to-large sized movement into weaker territory, but not below price levels from the initial rate sheet release time, and lenders reprice for the worse anyway).

We could be seeing the size of the swings starting to taper off for the day here, along with the lower volume, but it could also just be lunch time in NY. Whatever the case, 10yr yields have leveled off, asymptotically approaching the mid 1.62's and currently sit in the high 1.61's. That jives fairly well with our thoughts from this morning about 1.622 being a decent supportive target as a first line of defense with 1.63 being a bit more serious.

MBS either appreciate the relatively predictable behavior, or have just been so pent-up that it will take more than a little Treasury selling to coax Fannie 3.5's from their 105-handled perch. Those same Fannie 3.5's are currently 1 tick in positive territory on the day at 105-05. We'd expect diminishing returns on any Treasury bounce back into the PM, but a "stability reprice" or "relief reprice" isn't out of the question from a few of the characteristically quick-to-act lenders.