MBS RECAP: Mortgages Continue To Underperform; ADP Opportunity


The state of play in MBS is a bit less dire than it had been at the last update. Even though we continue to lag behind Treasuries, and despite an exceptionally bumpy ride from 9:30-present, Fannie 3s and 3.5s have managed to hold on to the morning lows and make incremental improvements from there.

This not only decreases negative reprice risk for the precious few lenders that may have been out before the drop this morning, but due to the conservative rates put out as a result of that drop, the bounce back is beginning to introduce POSITIVE reprice risk into the mix. That would probably take more time or further gains for any other lenders to consider beside the one reprice already out.

Beyond that, we’d caution against further volatility. The gains are good for now, but the positive surprise is equivalent to the kind you get when when your car dies and you manage to get it started and running just long enough to make it to the shop. With 10yr yields at 2.1355, we’re right in the middle of the recent range and at a bit of a pivot with yesterday’s high yields. If 10’s have trouble moving lower from here, MBS won’t likely make it back to opening levels.

Fannie 3s are currently down 6 on the day at 100-11 and 3.5s are down 7 at 103-09. Both are roughly a quarter of a point off previous lows, however.

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