Things had been exceedingly steady and narrow in range until a brief drop heading into the noon hour. Shortly thereafter, volume rose a bit, as did prices, leaving Fannie 3.5’s at 103-16. That’s a 14 tick improvement and the highest prices of the past two days. One positive reprice has already been reported, but we’re not seeing the kinds of market movements that would lead us to believe many more are necessarily coming. That eventuality depends less on current price movement and more on lender-specific factors such as how a particular lender’s rates have been trending versus the rest of the market, how/when they release morning pricing, how quickly they normally reprice, and what their inbound lock volume has been like.
Any way you slice it, things are good for bond markets at the moment, but this morning’s bullishness does create more of a challenge for the upcoming 7yr note auction than it would have faced at last night’s market levels. Whether or not that means that the high yield awarded and bid-to-cover will miss their targets is hard to say–whether or not anyone would care if they did, harder still. It’s just something to be aware of in the coming hour as a potential market mover.