MBS RECAP: Held Down at Weaker Levels From the Start


Reprice risk is ebbing after progress stalled on today’s potential debt-ceiling/government funding plans in both the House and Senate. CNBC is reporting some GOP members want Boehner’s counterproposal to be even tougher with respect to adding conditions to any deal that funds the government into 2014. Earlier today, the postponement of the medical device tax was the most notable such condition.

Around the same time, Senator Durbin said that Negotiations in the Senate were on hold until the the House works out a plan to proceed. Taken together, these developments suggest we won’t see a debt deal today. Given that a potential deal fueled selling pressure for bond markets, some of that pressure is now being unwound.

Fannie 3.5s are back up to 100-31 after falling as low as 100-26 previously. This alleviates much of the preexisting reprice risk IF prices maintain these levels. With the potential for additional headlines out of Washington, that’s not necessarily a safe bet. The best conclusion is that this move puts an end to today’s bout of ongoing selling pressure that had been in force since 10am. Whether or not the pressure is reversed remains to be seen.

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