MBS RECAP: Bond Markets Decide To Hold Thursday’s Gains (Instead Of Friday’s)


Bond markets have weakened somewhat from earlier levels and equities are noticeably off their lows, having advanced steadily since 10am. At first blush, this might seem like it has something to do with the only news hitting wires at the moment, which is Obama’s statement on the economy.

But if we’re to give credit where credit is due, then we must–as is so often the case of late–turn to Europe where equities are off their lows and German Bunds have sold off impressively from low yields of 1.28, up to nearly 1.35 at the moment. US Tresuries continue their standard-issue “mirror and match” routine, but have undergone a similar move with about half the magnitude, moving from 1.56 earlier this morning to 1.60 now.

MBS are holding their ground reasonably well with Fannie 3.5’s still up 2 ticks on the day at the 105-02 pivot point (roughly yesterday’s highs). Fannie 3.0’s are up 3 ticks at 102-16 after being as high as 102-24 earlier. Are these losses enough for negative reprice risk? Tough question in this case as they began very close to rate-sheet time for many lenders. The risk might be very small and limited to a very small amount of lenders at the moment, but increasing if current pivots are broken (105-02 and 102-16 in 3.5s and 3.0s respectively). Increasing safety if we bounce back into the day’s existing range.

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