Heading toward the 3pm close, the FN 4.0 is +0-07 at 98-18 yielding 4.139% and the FN 4.5 is +0-06 at 101-12 yielding 4.347%. The FN 4.5 is 3 ticks off the intraday price high of 101-15. In the chart below you can see that we've broken out of the range that has contained price action this week.
The secondary market current coupon is 4.264%. This is 2.8 basis points below yesterday's 5pm "going out" current coupon level. Ahead of the release of the monthly prepayment report tonight, "rate sheet influential" MBS yield spreads are a few basis points tighter to Treasuries and swaps.
The 3.625% coupon bearing 10 year Treasury note is +0-03 at 100-04 yielding 3.608%. Since yields fell after the release of Pending Home Sales data....the market has moved mostly sideways above 3.60% resistance.
10s have tried to break range all week but have consistently failed to do so. This reflects a lack of conviction and a focus on short term profit churning strategies, something that is to be expected ahead of a major market event such as the release of the Employment Situation Report tomorrow morning. That same concept applies to rate sheets as well. While the FN 4.5 has broken range resistance, I would not expect too much love from lenders ahead of jobs data in the AM. No need to increase fall out risk. This would explain why only a few lenders have repriced for the better even as price gains are holding near intraday highs.
Looking ahead at the rest of the day, I anticipate we'll some last minute position squaring/profit taking in benchmarks. With that in mind I expect 10s to return to the 3.625% par pivot point and a move lower in MBS prices. If I am wrong and current price/yield levels hold steady, you might just see a few more lenders passing along extra rebate, but I am not holding my breath for broad reprices for the better unless the FN 4.5 ticks higher even higher in price.
At 3pm we get another read on how much the Federal Reserve spent in the agency MBS market last week. There is less than a month left in the program now....