MBS RECAP: 2/9/2012


Although it’s still too soon to plan on current support levels continue to hold up through the day, MBS have done a decent job of holding the line at February’s lows this morning. From the 3rd through the 8th of the month, Fannie 3.5’s ground incessantly against 103-18 and have bounced there again this morning. 10yr yields are much higher than their highest February levels and are trying to establish some support at high yields from earlier this morning just under 2.06.

The fates of Fannie 3.5’s with respect to 103-18 seem tied to this 2.06 mark in Treasuries for now, but given the recent volatility in spreads, a linear relationship between the two is not guaranteed, especially with roll-related liquidity considerations.

Several European finance ministers have come out saying that there won’t be any results from the Eurogroup meeting today, something that Greece’s PM indicated as goal in extending last night’s meeting. That could be partially fueling current bounce attempts for bond markets, but technical factors could certainly be in play as the sell off takes 10yr yields to very long-term trend channel support. Markets may also be interested to see how today’s 30yr bond auction goes as well as any other enlightening headlines out of Greece.

After bouncing at 103-18, Fannie 3.5’s are currently back to 103-22 while 10yr yields are down to 2.0399 after nearly touching 2.06. Despite the bounce, we did see one report of a reprice for the worse, but that was from a lender that tends to price earlier in the morning than most. The majority of lenders priced late enough in the morning that MBS had already experienced most of their losses. Thus, we don’t think additional reprices for the worse are too terribly likely unless prices turn around and start falling again. It could happen, but at the moment, is not warranted by the price action.

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