MBS RECAP: Bond Markets Rally As Eurozone Braces For Impact

More than 3 hours after first reaching 103-07, Fannie 3.0 MBS continue to operate within a tick of that price (which is 12 ticks higher on the day). 10yr yields pivoted in the mid 1.85’s intraday and are once again testing mid 1.83 resistance (currently 1.868).

The auction itself was average in most regards with slightly lower outright demand (2.73 bid to cover vs 2.84 recent average) but balanced out by a slightly lower than expected yield award (.760 vs .764). Indirect bidding, which is a loose proxy for foreign demand, comprised roughly 45% of the auction vs 40% on average.

Bond markets held their ground in the immediate wake of the auction, but have improved very slightly since then. The gains look like a simple unwinding of a bit of pre-auction defensiveness. In other words, the “normal stuff” (German Bunds, Euros, Italian spreads) had all been suggesting slightly lower Treasury yields than were actually seen at around 12:50. Treasuries may have been holding off due to the upcoming auction, and are now catching back up with the pack.

That “pack,” as it were, has since bounced. Thus, the gains have been minimal, amounting to about 1bp in 10yr Treasuries and 1 tick in Fannie 3.0 MBS. This leaves the door open for positive reprices, but most lenders released their first rate sheets near the highs of the day. Most of the reprice potential would rely on stability near these highs of the day, and even then, would not be a widespread phenomenon unless we see 2-3 more ticks of improvement.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/301858.aspx

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