Both MBS and Treasuries are holding their ground well this afternoon, not willing to chase the stock market’s bounce back to opening levels. A combination of a worse-than-expected ISM Non-Manufacturing report and the unwinding of some defensiveness as stocks opened lower helped bond markets to their best levels of the day from 9:30 to just after 10am. They’ve been sideways since then and not much phased by stocks’ return to their highs of the day.
Essentially we’re seeing markets settle into a pre-NFP groove and thus far, they appear to be filing out the door in an orderly manner. Volume is progressively lower, as is volatility. MBS are near their highs of the day, up 7 ticks in Fannie 3.0s at 102-30 and up 6 ticks in Fannie 3.5’s at 105-15. 10yr yields are down to 1.5884 after being as high as 1.624 this morning.
We’ve seen one positive reprice and wouldn’t rule out a few additional reprices if MBS continue holding these levels, but it’s largely dependent on the time of the initial rate sheet, with capacity, and general historical aggressiveness playing supporting roles. As such, reprices for the better won’t be widespread. More importantly, negative reprices due to MBS movements are not a risk at the moment, though we can’t speak to potential “pipeline control” reprices.