The morning hours consisted of a slow, steady, and almost perfectly technical rally for MBS which are now up 10 ticks in Fannie 3.5s at 105-03 and 15 ticks in Fannie 3.0’s at 102-22. The latter is now through it’s highs from yesterday despite accounting for the lion’s share of new originations today. That speaks volumes to the recent cycle of “optimism, fear, relief” for the Down-In-Coupon trade.
Essentially, 3.0’s were in favor heading into FOMC, then pulled back more quickly than 3.5’s yesterday, but are once again outperforming as MBS breathe a relative sigh of relief. Morning uptrends remain intact, but face stern opposition overhead. The broader bond market rally would have to see 10’s extend a bp or two into the 1.5’s before we’d expect MBS to maintain current trajectories.
When the uptrends are broken (if they’re broken), we’ll be looking for sideways support at various levels (we’ll take anything we can get really), ranging from yesterday’s highs to yesterday’s first ledges of support ahead of the FOMC Announcement. For Fannie 3.5’s, this would be 105-03 (current levels) and 104-30+.
Several lenders have repriced positively, and it’s not unreasonable to expect to see a few more at current levels, with the likelihood increasing to the extent current levels are maintained or improved upon.