MBS Pricing Snapshot

Bond markets continue to follow stocks and stocks continue to follow Fiscal Cliff headlines. The most recent headlines from Bloomberg indicate that Senate Majority leader Reid is "hopeful" for a Fiscal Cliff deal today.

10yr yields hit their highs of the morning at 1.7426 and MBS hit their lows with Fannie 3.0s returning to 104-21 before bouncing back to 104-24.

Today will be an important one to "know thy lender," as reprice likelihoods are just as much an exercise is psychoanalysis as they are about observing MBS price movements. Based purely on MBS prices, we're probably not at much risk for the few lenders who are out with rates already, but some lenders switch to a defensive stance and reprice negatively simply on volatility and trends.

Stepping back from the more tightly focused 1-2 day time frame and this morning's market movements have been relatively inconsequential, especially given the nearness of the Fiscal Cliff deadline and lack of meaningful progress. But in the context of this morning, stocks spiked following a soundbytes from Rep Van Hollen citing progress in talks between Biden and McConnell, as well as a similar clip from Corker roughly 20 minutes, simply mentioning he expects a deal today.

Treasuries were doing a better job of marching to the beat of their own drummer until then, having moved from 1.73 to 1.694 in the European session. As stocks swung higher, 10yr yields followed, moving back to the same 1.73 overnight. For their part, MBS have taken the news mostly in stride, falling from 104-29 highs just after the open to 104-21 before bouncing back as Treasuries and stocks came off their highs.

There are no significant scheduled data sets today and bond markets will close early at 2pm Eastern. Volume has been better than the days before and after Christmas, but still very low compared to longer term averages. The most striking feature of today's trade thus far has been the faithful, even if slightly delayed, adherence to the stock lever.

To that end, the equities open could be the next informative event with S&P's looking like they favor a bit of weakness in the first few ticks of the cash open. Bond markets continue to follow with 10's moving back down into the mid 1.71's and MBS back up to 104-27, just 1 tick weaker than Friday's close. Naturally, the caveat is in order that these are just the first 2 minutes of domestic stock markets being open, and we'd imagine that a reversal in the slightly negative sentiment so far would prompt a similar reversal in bond markets. Of course the caveat there is that all this is happening on a small scale... Zoom out to a 3 day+ view and none of these swings matter.