MBS RECAP: Heavy Supply And Treasury Selling Weigh On Mortgages

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Coordinated moves in stocks, bonds, EU debt markets and to a smaller extent, the Euro, all suggesting a “risk-off” move taking 10yr yields close to their lowest levels of the morning. We don’t see any headline cause-and-effect at the moment (not to say it doesn’t exist), but the move looks like it started in equities markets around 12:13pm. This also coincides with a technical break below 1.249 in the Euro. SP’s are off about 4 points since then and 10yr yields down about 2bps.

In terms of MBS, Fannie 3.0’s have been the bigger beneficiary, moving up about 2 ticks while Fannie 3.5’s have added only about 1 tick. From the perspective of outright gains, it’s not enough for a positive reprice, but if you factor in the choppy morning, and if a particular lender was more cautious with pricing as a result, then combine that with some decreased volatility and slightly higher prices, it’s starting to feel like one of the “early crowd” lenders might toss out a positive reprice soon. We’d continue watching 105-03 in Fannie 3.5’s for negative reprice risk or 102-22 to 102-24 as a spectrum of risk in Fannie 3.0’s. (neither of those levels look to be in jeopardy at the moment, but if the recent rally changes course, those levels are where we’d start to care).

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