MBS Pricing Snapshot

Earlier this morning, we noted that month-end flows were generally a positive things for bond markets, all things being equal. As it happens, they've also just generally helped us avoid any further reprice risk as Treasury yields stomped decidedly lower into the 3pm close and beyond.

10s moved 3bps lower from 230pm to 3pm and have extended those gains about another bp in the after-hours session. MBS are mostly just passengers on that ride, not experiencing the same pace of reversal, but conversely, not having sold off quite as much as Treasuries earlier in the day. Fannie 3.0's are back to 104-03, essentially in line with their highs of the day.

Whereas negative reprice risk was more of an issue earlier, now we'd lean toward positive reprice risk with the month-end storm weathered in Treasuries and prices continuing to hold steady. That said, we think NO reprice is more likely than a reprice in either direction--simply erring a bit on the positive side currently, vs negative previously.

In the first 10 minutes of the 1pm hour, 10yr yields moved up a rather brisk 1.7bps to 1.50 and Fannie 3.0's fell to 103-29. This is the level we just referenced as a sort of line in the sand to negative reprice risk. Even though they put in a decent bounce back up to 103-31, things look to be deteriorating yet again.

The risk is that we've simply entered a trend of weaker prices into the close. One could certainly get that impression based on the highs and lows in play since this morning. So we'd advocate keeping a close eye on on each instance of new lows for MBS. Every time we tick down to a new low, there's more an more evidence of this negative trend persisting.

Negative reprices risk is already somewhat present at current levels, but if Fannie 3.0s don't soon break back over 103-31 or 10yr yields below 1.495, risks could increase into the afternoon.

It could be that the recent move in bond markets looks like it's more significant than it actually is due to the docile trade that preceded it. 10yr yields rose just over 1 bp into the noon hour and Fannie 3.0s fell from 104-02 to 103-31+.

This is the sort of movement that we might not even note on another day, but we're cognizant of the fact that higher prices prevailed into the rate sheet hours when 3.0s were around 104-04.

We're not especially concerned about the prospect of negative reprices at the moment, but did want to let you know that markets were doing something besides completely flat-lining into the afternoon. Volume is low enough that the recent mini-spike could even be attributable to lunch-time in New York.

Whatever the case, it seems clear that there's no major determination for big swings ahead of tomorrow's FOMC and Thursday's ECB announcements. We'd keep an eye on 103-29 in Fannie 3.0s as the most noticeable line in the sand for negative reprice risk.