MBS Pricing Snapshot

You'd be hard-pressed to find a LESS interesting reaction to an FOMC Announcement than what we've seen today. If you'd told us right at 2:14pm that the 104-16 to 104-19 range that had governed most of the day in Fannie 3.0s would hold up through the end of the session, we'd have stopped just short of laughing, yet HERE WE ARE!

Fannie 3.0s haven't fallen below 104-16 or broken above 105-19 since the announcement and currently trade at 104-18. Treasuries remain in the thick of their range on the day though favor slightly lower yields at the moment, down to 1.77 from 1.79+ earlier this morning. Stocks have slumped a bit as well, but haven't broken lower than mid-day lows. Everything's very contained...eerily even!

Without putting too fine a point on it, the Fed changed nothing with the exception of referring to household spending as slightly stronger and inflation having picked up a bit. There were no adjustments to any of the policy-related verbiage and the ongoing firm commitments to keep policy intact were unchanged.

As for mortgage rates, the reprice outlook, inasmuch as it's spurred by MBS fluctuations, looks neutral for now. We'll watch for any breaks of 104-16 or 104-19 to see if there's follow through.

Markets continue to show their ever-waning level of interest in the shorter duration Treasury auctions as today's lackluster 5yr issuance has failed to spook any sort of sell-off. In fact, if anything, we're seeing some slow and steady determination on the part of MBS and longer-dated Treasuries to hold supportive levels and remain at least sideways heading into the FOMC Announcement.

As for the auction itself, the stopping yield was reasonably close to expectations, but slightly higher. Demand was weaker-than-average with a Bid-To-Cover of 2.73.

The first reaction amounted to a brief hiccup to the weak side for both MBS and Treasuries, but at this point, it's indistinguishable from the rest of today's price action and bond markets have actually strengthened a bit in the first 15 minutes following the auction.

For MBS, this eases previously growing risks of negative reprices and for bond markets in general, serves to keep us more sideways and range-bound heading into FOMC at 2:15pm. It's not out of the realm of possibility for MBS to break higher before then, but it would have to be a convincing break to prompt positive reprices from more than 1 or 2 lenders.

Depending on the investor and the timing of initial rate sheets, negative reprice risk is already on the radar as MBS move to new lows on the day.

For Fannie 3.0s that's 7 ticks lower than yesterday's 5pm levels at 104-15, but only 3-4 ticks lower than the time frame that most lenders release rate sheets.

This doesn't seem to be a runaway sell-off at the moment, so we might wait it if the lender we were floating with had a historical tendency to not be on the bleeding edge of the reprice scene. But we'll let you know if that changes. As for now, one or two lenders are already at risk, but not "most."