MBS RECAP: Built up to be Let Down

Moments before the Treasury Auction results, MBS volatility picked up and quotes started flying fairly far from reality’s probable mid-point. While we did see a majority of that volatility correct already, there’s no guarantee it won’t return.

The auction itself was very much middle-of-the-road, albeit on the weak side in terms of demand. The yield, however, was right on the money, and that’s the most important factor (usually) in any auction, as long as other metrics aren’t completely out of line.

That said, 10’s are weaker since 1pm, and just ratcheted a bit higher after initially holding their ground. MBS look to be under some slight pressure as well after correcting from the initial bounce, but post-auction volatility is still working its way through both sides of the market.

Unfortunately, there is some negative reprice risk here, but it’s one of those situations where we might see none, and where volatility could be resolved in our favor by the time you read this. As of this moment (1:12pm), it looks like that bounce back is more possible than a scary slide, but of course, we’d update you anyway if such a slide were encountered.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/312472.aspx

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