Fannie 3.0 MBS have returned to their modal highs of the month at 102-23 to 102-24 (prices of June coupons were slightly higher near the beginning of the month, but July coupons were not) against an exceedingly calm, low-volume, low-volatility, Monday morning backdrop. Prices were more contained in the first two hours of the day, causing rate sheets to err on the conservative side for a few lenders. We’re now seeing several positive reprices as a result.
Despite the positive reprices, markets have been moving more sideways than directionally this morning. 10yr yields have held a narrow 1.604 – 1.628 range and most of the day-over-day “green on the screens” is courtesy of overnight gains rather than new territory forged in the domestic session. MBS are a bit of an exception to that generality, but we’d emphasize that they’ve merely firmed up in relation to benchmarks, and at least for now, are clearly avoiding a technical break above monthly highs.
That’s not really to say anything about changes in lenders’ rate sheets at the present moment. Indeed, we may see additional positive reprices here, but just be aware that they’re more to do with MBS getting “caught up,” and less about some “new rally effort.” It’s just a quiet Monday morning that happens to have swung favorably for MBS.
General market sentiment seems a little downbeat and pessimistic about this week’s EU Summit (which we’re totally OK with!). But combine that with the technical grind around the best levels of the month and we’re a bit guarded against a technical bounce. This could easily prove to be an unfounded fear and quickly, but until/unless Fannie 3.0’s break higher from here (or Treasuries give a clear cue that would lead us to expect that), we’re getting that feeling that we sometimes get when it looks like we’re hitting our heads on an MBS ceiling, even if it ultimately proves to be a breakable one.