That’s it… Deal’s Off… Instead of a rapid, directional rally, MBS and 10yr yields alike have returned to flirt with their weakest levels of the afternoon. That’s not entirely a bad think as that still leaves them in better shape than earlier this morning.
But at the very least, this changes the reprice outlook away from “likely” and more toward neutral. There’s still enough time for things to go either way, but it if SP’s are moving higher over 1200, then things could get ugly for bonds, possibly even resulting in potential reprices for the worse.
Fannie 3.5’s are holding onto 101-06 for now. Reprice risk picks up at 101-04, and would get critical at 101-00. On the upside, we’d need to break and hold above 101-10-ish, and preferably hit and hold 101-14 for broad-based price improvements.