If you look at the chart of Fannie 4.0’s vs Fannie 3.5’s, you’ll see the general problem plaguing production coupons at the moment (i.e. 4.0’s have been fairly flat while 3.5’s have been slightly weaker). We’re dealing with the twofold problem of late-day illiqudity as well as some re-allocation between 3.5’s and 4.0’s.
3.5’s have been rampantly increasing in popularity vs 4.0’s, and today sees a bit of ‘unwinding’ of that phenomenon. Add to it the fact that buyers (particularly the Fed) was waving em in this morning, but that the afternoon belongs to sellers and you have the recipe for what’s on the screens currently. Liquidity is crap, too. Some lenders may see the current weakness as justification to reprice negatively, but in the slightly bigger picture, we’re still just leveling off from a month-long rally. “Strategic” vs “tactical” considerations when it comes to locking. Tactically, risks are at their highest levels of the day, but strategically, nothing’s really changed.