MBS Pricing Snapshot

It's tough to say whether or not reprice risk will increase this afternoon because that possibility depends largely on price action that has yet to occur and may never occur. We've seen one negative reprice already, but it was from a known "pipeline controller" who was priced relatively aggressively to begin with. at a difference of less than 4 ticks from morning rate sheets, MBS movement doesn't quite justify it.

However, there has been a trend of weakness this afternoon independent from Treasuries. It occurred before the 3pm Treasury close and hasn't readily abated afterward. If this continues to be the case, reprice risk will increase.

Fannie 3.0's are currently up 8 ticks on the day but down 4 ticks from rate sheet time at 104-05 in Fannie 3.0s. 10yr yields continue to hold well under the 1.442 pivot, currently at 1.433.

Treasuries and MBS have moved to their weakest levels of the morning (which are still in better territory than record levels before today) after the details came out on the Fed's scheduled "Operation Twist" buying at 11:00am. Dealers submitted a whopping $19.98 bln of 2018-2019 Treasuries for the Fed's consideration, with the latter buying $4.78 bln.

That's a lot more supply than is normally seen for Fed Buybacks so prices moved lower to help move it along from 11:00 - 11:15. Fannie 3.0's did hit their lows at 104-05, but are now back up to 104-08. Similarly, Treasuries briefly touched the 1.44's but have bounced lower to 1.428.

So far it looks like bond markets are ironing out the kinks caused by the surprisingly high buyback supply, but we'd keep our eye on 1.442--the previous all-time low for 10yr yields--to no be an informative overhead ceiling. If we cross it, MBS weakness shouldn't be far behind. Anything under there looks to be cruise control (or better) for MBS.