MBS RECAP: 11/2/2011


MBS were in positive territory heading into the 12:32pm release of the FOMC Announcement. If it they had been hoping for additional consideration from the new statement, you wouldn’t know it by the reaction. Reason being: The Fed didn’t give MBS any additional consideration and MBS didn’t sell off, either outright or vs TSYs. But as the reaction has manifested itself, MBS are now a tick in the red at 102-08 in Fannie 3.5’s with a pivot point below at 102-06/07 from which we might hope for some support. If we get support there, reprices for the better are possible though it’s uncertain how many lenders beyond the characteristic “early few” would get on board.

The statement was about as equivocal as it could have been, with all the usual suspects still in play: slow growth, low rates through 2013, inflation not a threat, continue to monitor, act as needed, blah blah blah. One point of interest might be the fact that we’ve decreased the number of dissenters from 3 to 1. Bond markets are eyeing stock trading closely right now and may be anxious that the emotional equities side of the market see increased prospects for QE3 after this shift in dissenters. As stocks whip around, ostensibly trying to decide whether or not to treat 1229/1230 SP as some sort of epic pivot point, bond markets look ready to capitulate. Show’s not over yet, things are still choppy. 1230 ceiling for stocks = good for bonds, but if stocks treat it as a floor, or worse yet, a “trampoline,” bonds could suffer, MBS too.

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