MBS Pricing Snapshot

Fannie 3.0's have once again ventured down to the 103-10 level, which we sort of view as the gateway to negative reprice risk. Benchmark 10's have broken over their 1.50 supportive ceiling and MBS are definitely struggling with liquidity this afternoon. Buyers have clocked out, sellers remain. All that said, there's a good chance that reprices would be limited at current levels given the narrowness of the range and the conservative rate sheets this morning vs yesterday. We're not thinking we'll see too many reprices unless Fannie 3.0's break below 103-10. The bigger and more sustained the break, the truer that becomes. For now, the weakness is fairly minor. Nothing big behind it.

Make no mistake that this morning's economic data has been of little to no concern to bond markets which have instead favored European headlines and structural trading around the Fed's scheduled "Twist" buying in the 30yr sector. Before the news that Spain approved a bank liquidity plan led yields sharply higher around the 10am time frame, morning weakness for bond markets was more incidental and technical with word of a large seller having a distorted impact on prices due to the low volume. Bond markets leveled off of their own volition just before the Fed buyback and have emerged slightly stronger on the other end. 10yr yields paid noticeable attention to the 1.50 technical level in that they moved abruptly higher after breaking it and abruptly lower back to it when Fed buying concluded. They've since "bounced" against 1.50 as a ceiling several times and are now down to 1.4944. So far so good there, and MBS agree with Fannie 3.0's back very close to unchanged at 103-15, also the highs of the session. We're not thinking about tons of positive reprice potential here, but it certainly reduces the risk of negative reprice potential.