Certainly “something” happened at 2:31pm that caused a big spike in futures volumes and a moderate spike in Treasury yields, but with no block trades being reported, we’re not seeing clear causality. That said, MBS did chase the movement initially with 3.5’s falling to their lows of the day breaking beneath 104-20 for the first time since 6/6. That was enough for at least one of the “early-to-act” lenders to reprice for the worse.
But now as we cross the 3pm Treasury close, we find Fannie 3.5’s back at 104-21. 10’s have bounced back slightly, but it’s more of a “ground-holding” at the highs of the day than a pronounced turn-around. This puts the reprice outlook in a bit of a precarious position as it would be easier to assume more reprices were in tow if MBS were at the lows and falling or if Treasury cues looked increasingly ugly. The bottom line is probably that risk remains, but is somewhat less urgent than it might have been in the past half hour.
We’d keep an eye on 104-21 in Fannie 3.5s and if prices are below there and falling, risk is increasing. Treasury cues would come from crossing a line in the sand at 1.666. Bottom line, we might not be out of the woods yet, but the woods might not be totally as scary as they looked at first.