The day continues to live up to expectations of chunky tradeflows borne of necessity rather than liquidity, but has been surprisingly positive in the process. In other words, some folks MUST buy longer-duration fixed-income assets today (like MBS!) in order to bring their portfolios in line with certain indexes by the end of the month.
With the first day back from unscheduled down-time being the last day of the month, expecting a certain level of month-end support was a safe and logical call, but we didn’t know how it would balance out against the broader strokes of risk-on vs risk-off. Were markets in some sort of weather-related flight-to-quality, destined to unwind that uncertainty premium when trading started back up?
As it happens, no… apparently not. Stocks have been mostly down since the open and we’ve seen a surprising amount of stock lever. But now we’re seeing the rest of the last minute Month-End “duration grab.” This is bringing longer-dated Treasuries lower in yield and MBS higher in price.
Prices aren’t so much higher than 10am levels that we’d necessarily EXPECT positive reprices, but they’re starting to feel possible at this point. That said, we’d imagine lenders are less concerned with today’s locks and more concerned with attending to more pressing month-end matters. The morning rate sheets already showed us that. Bottom line, this alert lets you know that MBS prices are higher (9 ticks up in Fannie 3.0s to 104-31), and that positive reprice outlook is improved, but remains muted by the circumstances.