MBS prices have technically moved enough to alert you to the possibility of reprices for the worse. Volume and selling pressure for bonds picked up a bit heading into the official 3pm close--not alarming here at month end. But after the volume died down, sellers were left in control and 10 year yields added a few more bps while Fannie Mae 4.0 MBS fell 7/32nds. We should qualify, it REALLY depends on whether a lender already repriced, by how much, and from how conservative of an initial sheet (among other factors), but 7/32nds is technically enough of a movement to justify an alert. Whether that turns out to be the case here and now may be largely dependent on the particular lender. Overall, we're not seeing current movements important to the big picture, but they could be important enough for a few scattered reprices.

(Bloomberg) - Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker Mortgage Corp., was sentenced to 30 years in prison for leading a $3 billion fraud involving fake mortgage assets. Farkas, who has been in custody since his conviction in April of 14 counts of conspiracy and bank, wire and securities fraud, was also ordered by U.S. District Judge Leonie Brinkema in Alexandria, Virginia, to forfeit more than $38 million. “I actually don’t believe you accept responsibility for these criminal acts,” Brinkema said today as she handed down the sentence. “This was a very serious series of crimes.” Prosecutors said Farkas, 58, orchestrated one of the largest and longest-running bank frauds in the U.S., which duped some of the country’s largest financial institutions, targeted the federal bank bailout program and contributed to the failures of Taylor Bean and Montgomery, Alabama-based Colonial Bank. Farkas, who was wearing a green jumpsuit with the word “prisoner” stenciled on the back, appeared thinner and his hair darker than during his two-week trial. He read from a statement saying he had to “take risks” because he couldn’t accept the failure of the company. “I believe that everyone at TBW and Colonial Bank were acting together in good faith to help each other,” Farkas said.

The rules of U.S. Treasury auctions may not sound like the stuff of highstakes diplomacy. But a little-noticed 2009 change in how Washington sells its debt sheds new light on America’s delicate balancing act with its biggest creditor, China. When the U.S. Treasury Department revamped its rules for participating in government bond auctions two years ago, officials said they were simply modernizing outdated procedures. The real reason for the change, a Reuters investigation has found, was more serious: The Treasury had concluded that China was buying much more in U.S. government debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open - all without ruffling feathers in Beijing. Treasury officials then worked to keep the reason for the auction-rule change quiet, with the acting assistant Treasury secretary for financial markets instructing subordinates to not mention any specific creditor’s role in the matter, according to an email seen by Reuters. Inquiries made at the time by the main trade organization for Treasury dealers elicited the explanation that the change was a “technical modernization,” according to a document seen by Reuters. There was no mention of China.

(WSJ REAL TIME ECONOMICS) - Matt Phillips and Stephen Grocer put together this graphical look back at what the Federal Reserve’s bond-buying program did and didn’t accomplish. The Federal Reserve‘s second round of so-called quantitative easing comes to an end today, after $600 billion in Treasury-bond purchases over the past eight months. Chairman Ben Bernanke‘s stated goals: lower mortgage rates to boost housing, reduce corporate bond rates to encourage investment and raise stock prices to increase confidence and spending. Markets responded soon after the program was first hinted at by Mr. Bernanke in an Aug. 27 speech in Jackson Hole, Wyo. But the end goals proved more elusive. CHECK OUT THE INFOGRAPHIC: http://blogs.wsj.com/economics/2011/06/30/a-qe2-retrospective-in-pictures/

While it might not be good for the level of "alert nausea," MBS have improved enough that we could be entering the first stages a time frame where lenders are considering repricing for the better. The actual price improvements in MBS are already a sufficient distance from the lows of the day to justify a reprice for the better, but the questions is more appropriately how much stability will be required and for what length of time before lender's comfort levels allow it. To reiterate, in the best cases, it could be soon. In the the worst cases, not at all. Either way, lender pricing is widely stratified at the moment, leaving room for anything between small "token" reprices and something more in line with the actual MBS gains. To quantify those gains, we're essentially looking at previous lows around 99-24 versus current prices very near par--an 8/32nds gain, or a quarter of a point in terms of analogous rebate (of course lenders don't simply adjust rebate according to MBS Prices. We'd expect defensive, conservative stances to be in effect after the "spooky" morning.).

If you're watching charts, this is old news to you. We're just talking about the technical breakdown in 10yr Treasuries right now, not because they dictate mortgage rates, but because the overall "bond market" has been volatile and operating near longer term inflection points that speak to potential "shifts." In times like these, the value of analyzing MBS charts greatly decreases and underlying benchmarks become much more important. What we're seeing happen this morning is a bond market that came into the day as close to "on the edge" of the recent range as it could be. That was marked by 3.10 in 10yr notes, which was actually broken yesterday, but would need trading action today to actually confirm or reject the breakout. Long story short, the breakout has now been confirmed after looking indecisive leading up to 9:45am Chicago PMI data. After that, the snowball began. Volume ramped up, and yields moved sharply 10bps higher to 3.20. That was the next major technical level for 10yr yields, and in terms of "history repeating itself" is an analogous level to how things happened in 2010. If history continues repeating, more volatility is in store--BIG swings. But even before assessing that possibility, we can at least observe today that 3.20 has held as a supportive ceiling for 10yr yields, effectively stopping the bleeding. It could break again in coming hours or days, but for now, insane volume and a healthy bounce back down to 3.17 suggest that the bond market has pulled into the "pit lane" between sub-3.10 trading and greater-than-3.20% trading. Tomorrow's economic data may help inform a break away from this middle ground, either helping bonds get "back in the race," or retire and head to higher yields. The translation to MBS hasn't been unusually awful so far with 4.0's down just under three eighths (11/32nds) to 99-27. If you had rates well before 9:45am Eastern, reprices remain a risk. If you don't have them yet, expect a big cut to rebate.