After days and days watching MBS get ground into the ceiling at all-time highs despite falling Treasury yields, MBS finally had their chance to hold their ground for a minor correction higher in benchmark yields. When the dust settled, they had done just that! Treasuries were weaker overnight and into the NY open as European markets pulled back from the brink of further flights-to-safety after German Bunds bounced precisely on yesterday’s low yields. Treasuries didn’t follow Bunds much for that dip overnight as there was a 30yr Auction Concession to be done! Passing over the morning data without much notice, bond markets kept leaking higher in yield into the auction.
But the latter turned out to be relatively tremendous vs historical results, bringing longer-dated Treasuries back in line with their opening levels (say 1.88’s in 10yr yields). MBS were choppy within a narrow range, not too flustered by any of the overnight or morning weakness in Treasuries. Late day illiquidity is upon us now as May coupons have little reason to trade ahead of tonight’s roll to June. Most of the trading activity has been in the upper stack anyway, leaving the Fannie 3.5’s and 3.0’s more susceptible to whims of the few. We wouldn’t read much at all into price action in Fannie 3.5’s this afternoon and doubt any lenders will either. If you do see a negative reprice it won’t be due to the movements of MBS Prices.