MBS are now back down to their initial lows that followed the FOMC’s Taper Announcement. Rather than stand out as the product of one significant headline that turned the tide, the move back into negative territory has been gradual, and more to do with an exhaustion of the knee-jerk short-covering that initially led rates lower.
If there was one point in Bernanke’s press conference that added to the reversal it was this:
RTRS- ASKED ON ‘MEASURED STEPS’, BERNANKE SAYS WILL BE DATA DEPENDENT, IF WE ARE MAKING PROGRESS COULD REDUCE AT EACH MEETING, THAT WOULD TAKE US TO LATE IN THE YEAR
This could be as coincidental as anything, but whatever the case, 10yr yields steadily moved back up to 2.88% and Fannie 4.0s returned to their post-FOMC lows at 103-07.
There is SOME negative reprice risk at current levels, but not the excessive amount expected to follow a “taper” announcement. A fair amount of lenders will not need to reprice unless Fannie 4.0s fall decidedly below 103-05, and so far, this has acted as a support, post-Fed. The analogous support in Treasuries is a ceiling at 2.885. 10’s are currently bouncing just lower from there at 2.8775.