Best Pricing Gone. Rebate Still Seen Under 4.25%

Fed Considers QEvII. Debate Goes Public

$100bn in 2s, 5s, 7s Absorbed with Ease

Refi Apps Down Four Weeks in a Row. Has Demand Stalled Out?

In yet another slow, choppy session, bond traders booked profits before and after the third consecutive oversubscribed TSY auction of the week. The 10 yr note went out -0-09 at 101-02+ yielding 2.501% (+3.2bps). The 2s/10s curve steepened 3bps to 206bps. 5s were the weakest spot on the curve, closing 4.9bps higher at 1.281%.

While profit taking and position squaring should be a theme over the next two days, larger than average month-end index extensions (duration demands) should help keep "rate sheet influential" benchmarks from running significantly higher. However, if the overall bullish bias in the bond market proves exhausted, investors will likely reset tactical strategies and look to retest lower bond prices/higher yields (GET SHORT). This implies the next move for rates is higher, but I don't rule out 10s retesting 2.40% again before that happens.

The November FNCL 4.0 went out  -0-07 at 102-14. The intraday low was 102-13. The high was 102-24. I've got the production coupon marked at 3.637% (+2.9bps). Current coupon MBS yield spreads closed UNCH vs. 5pm indications yesterday.

Originator hedging totaled about $2.5 billion, with most of the supply focused in 4.0 Fannie, Freddie, and Ginnie 30 year paper (+1bn in FNCL 4.0s).  Mortgages were well offered this afternoon but buyers were M.I.A.  I'm not making a big deal of this because mortgages have underperformed all month and there is no reason to expect MBS to make a sudden bullish (spread) reversal at this point, but I am keeping an eye on 3.5s, wondering if a short squeeze might be in the works.

The RED and YELLOW sideways trendlines make up the range we  played in September. The gray lines are internal trendlines within the range.  The next move looks to be a retest of range support at 102-10.

Reprices were reported this afternoon. Only two of the majors recalled rate sheets but a handful of regionals, wholesalers, and mid-majors went for the worse.  In terms of the five biggest banks, before rates were repriced, rebate was 8.5bps worse on average. After reprices, 14.3bps. Not much change to buydowns.  

Hopefully you caught my lock/float hints in there, at least for 10-15 day float boaters....