MBS Pricing Snapshot

The potential reversal to the sell-off is turning out to be nothing more than a bump in the road. While we're not yet back to the weakest levels of the afternoon, we're certainly not hurtling gleefully higher in price simply because the White House talks ended without a stop-gap budget deal.

Fannie 3.5s are back down near unchanged levels on the day (up 1 tick at 101-08, but down a quarter of a point from morning highs). Again, there's no dire implication here, but it does leave the door open for negative reprice risk, whereas there was a chance it would have been more firmly closed if the bounce back had more traction.

From here on out, it looks like the best-case scenario is a consolidative grind for bond markets into the close.

The inspiration for the sell-off had been the consideration of a new debt-ceiling stop-gap bill, and republicans had been in closed door meetings at the White House. But as they're now leaving that "building" with no deal struck, so too is the inspiration.

It's a bit too soon to jump to conclusions about how the rest of the day will go, but not too soon to update you on the reversal of fortune for bond markets. The selling trends have been halted for now. 10's have paused near the 2.670 level and Fannie 3.5s are 4 ticks off their lows at 101-10.

Negative reprice risk could still be lingering, but is somewhat reduced for lenders that haven't pulled the trigger yet. Ultimately, we'd characterize what just happened as an end to the most sincere selling motivation, but not necessarily justification to head the other direction. It looks like market participants aren't quite sure either.

It's been a while since we've seen some good, old-fashioned Friday afternoon "leakage" in MBS, but it looks like that may be on the docket for the 2nd half of the day. Fannie 3.5s are down another 2 ticks from the last reprice alert, increasing the chances that more than a just a few lenders are considering it. 10yr yields broke above the 2.671 level mentioned over the past few days as an important inflection point. That doesn't necessarily mean anything dire, but the pressure should be taken seriously. More reprices are probably on the way.

After running all the way down to 2.645 this morning, 10yr yields popped quickly back up to 2.66 after headlines came across indicating House republicans were waiting on a response from the White House on that latest debt-limit stop-gap bill. Stocks experienced the move as a modest 4 point rise in S&P and MBS sold off roughly 4 ticks. None of these moves are epic, and non of them are showing any signs of follow-through yet, but the initial direction suggests the follow through could come if the White House 'doesn't reject' this offer.

Negative reprice risk is an outside possibility for some of the quicker-to-reprice type lenders. We also can't rule out potential follow through (of weakness) even before the White House responds. If we slip below current levels, reprice risk would become moderate (as opposed to current risks which are "light/modest"). All that having been said, know thy lender. Some have itchy trigger fingers on 4-5/32nds of weakness from rate sheet levels.